Spatial Proximity in Venture Capital Financing (eBook)

Dr. Marko Bender completed his doctoral thesis at the KfW Endowed Chair in Entrepreneurial Finance of Prof. Dr. Dr. Ann-Kristin Achleitner at the Technische Universität München.

Acknowledgments 7
Table of Contents 9
List of Figures 13
List of Tables 15
List of Abbreviations 17
List of Symbols 19
1 Introduction 20
1.1 Problem and Aims of Analysis 20
1.2 Research Methodology 24
1.3 Outline of the Thesis 26
2 Fundamentals of Venture Capital Financing and Spatial Proximity 29
2.1 Venture Capital Financing 2.1.1 Definition of Venture Capital 29
2.1.2 Characteristics of Portfolio Companies 32
2.1.3 Characteristics of German Venture Capitalist Types 33
2.1.3.1 Private Venture Capitalists 35
2.1.3.2 (Quasi-)public Venture Capitalists 36
2.1.4 Venture Capital Investment Process 39
2.1.4.1 Deal Origination 40
2.1.4.2 Deal Screening 44
2.1.4.3 Deal Due Diligence 46
2.1.4.4 Deal Structuring 50
2.1.4.5 Investment Development 53
2.1.4.6 Investment Exit 56
2.2 Spatial Proximity 2.2.1 Definition of Spatial Proximity 59
2.2.2 Spatial Distribution of Venture Capitalists and Venture Capital Investments 60
2.2.3 First Implications Regarding the Role of Spatial Proximity in Venture Capital Financing 62
2.3 Overview of Relevant Literature 64
general studies 65
observed patterns in spatial prox-imity between venture capitalists and portfolio companies. 66
impact of spatial proximity on the likelihood of a VC investment. 68
impact of spatial prox-imity on specific aspects of VC transactions. 69
3 Relevant Theories for the Analysis of Spatial Proximity in Venture Capital Financing 79
3.1 Identification of Relevant Theories 79
3.2 Theories Relevant to the Venture Capitalist Entrepreneur Dyad 3.2.1 New Institutional Economics as Starting Point 84
3.2.1 New Institutional Economics as Starting Point 84
3.2.1.1 Property Rights Theory 86
3.2.1.2 Agency Theory 89
3.2.1.3 Transaction Cost Theory 106
3.2.2 Further Theories Explaining the Role of Spatial Proximity 112
3.2.2.1 Game Theory 112
3.2.2.2 Stewardship Theory 120
3.2.2.3 Social Exchange Theory 127
3.3 Theories Relevant beyond the Venture Capitalist Entrepreneur Dyad: Network Approach 134
3.3.1 Theoretical Foundations 135
3.3.1.1 Approach of Inter-Organizational Networks 137
3.3.1.2 Formal Network Analysis 140
3.3.2 Relevant Networks 142
3.3.3 Implications of Spatial Proximity between Actors 148
3.4 Summary 149
4 Impact of Spatial Proximity throughout the Venture Capital Investment Process 151
4.1 Pre-Contractual Activities 153
4.1.1 Deal Origination 153
4.1.2 Deal Screening 159
4.1.3 Deal Due Diligence 163
4.1.4 Deal Structuring 171
4.2 Post-Contractual Activities 172
4.2.1 Investment Development 172
4.2.1.1 Monitoring 172
4.2.1.2 Support 177
4.2.2 Investment Exit 186
4.3 Summary and Testable Hypotheses 192
4.3.1 General Impact of Distance 193
4.3.2 New Venture Characteristics 196
4.3.3 Venture Capitalist Characteristics 199
4.3.4 Investment Round Characteristics 203
5 Empirical Analysis of Relationships between Spatial Proximity and the Type and Likelihood of Venture Capital Financing 205
5.1 Description of Dataset 206
5.1.1 Available Datasets for Analysis 206
5.1.2 Used Dataset 207
5.1.3 Measurement and Definition of Variables 213
5.1.3.1 Spatial Proximity 213
5.1.3.2 New Venture Characteristics 214
5.1.3.3 Venture Capitalist Characteristics 217
5.1.3.4 Investment Round Characteristics 220
5.1.3.5 Control Variables 222
5.1.4 Summary Statistics 224
5.1.5 Possible Selection Biases 226
5.2 Patterns in Spatial Proximity between Venture Capitalists and Investees 232
5.2.1 Empirical Strategy to Investigate Patterns in Spatial Proximity 232
5.2.2 First Bivariate Analyses 235
5.2.3 Ordered Logistic Regressions 240
5.2.4 Robustness Tests of Conducted Analyses 253
5.2.5 Limitations of Analyses 254
5.3 Impact of Spatial Proximity on the Likelihood of a Venture Capital Investment 256
5.3.1 Empirical Strategy to Investigate the Likelihood of a Venture Capital Investment 256
5.3.2 Rare Event Logistic Regressions 263
5.3.3 Robustness Tests of Conducted Analyses 290
5.3.4 Limitations of Analyses 291
5.4 Summary of Results and Discussion 292
6 Conclusion 302
6.1 Summary of Results 303
6.2 Implications of the Impact of Spatial Proximity on Venture Capital Financing 6.2.1 Implications for Entrepreneurs 308
6.2.2 Policy Implications 310
6.2.3 Implications for Venture Capitalists 313
6.3 Further Research and Outlook 314
Appendix 316
Appendix A Definitions from VentureSource 316
B Appendix – Description of Dataset 318
C Appendix – Patterns in Spatial Proximity 319
D Appendix – Likelihood of a Venture Capital Investment 332
References 348