Venture Capital and Startup Agglomeration

Jun Chen and Michael Ewens

No 29211, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The paper studies venture capital’s (VC) role in the geographic clustering of high-growth startups. We exploit a rule change that disproportionately impacted U.S. regions that historically lacked VC financing via a restriction of banks to invest in the asset class. A one-standard-deviation increase in VCs’ exposure to the rule led to a 20% decline in fund size and a 10% decrease in the likelihood of raising a follow-on fund. Startups were not wholly cushioned: financing and valuations declined. Startups also moved out of impacted states after the rule change, likely exacerbating existing geographic disparity in entrepreneurship.

JEL-codes: G21 G23 G24 K22 L26 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-cwa, nep-ent, nep-isf, nep-pay and nep-sbm
Note: CF PR
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