Faculty & Research

The Other Half: How does Non-VC Hub Location Affect Startups’ Access to Initial Equity Investment?

25 Sep

2025

11:00 am

Jouy-en-Josas

English

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Strategy & Business Policy

Speaker: Florence Honore

Professor - Wisconsin

Conference Jouy-en-Josas / room meeting (T001)

ABSTRACT

While regional entrepreneurial ecosystems are geographically dispersed within the U.S, the venture capital (VC) industry is highly localized in three regions: Silicon Valley, Boston, and NYC. We investigate differences in access to initial equity financing of startups located in these VC Hubs and elsewhere (non-VC Hubs) to examine whether financial capital flows efficiently to high-potential entrepreneurial opportunities regardless of their location and adjudicate among potential explanations for observed differences. To do so, we assembled the census of 19,294 US early-stage initial equity financing investments reported in the 1992-2019 period. Although there are just as many investments in VC and non-VC Hubs, we find that relative to those in VC Hubs, startups in non-VC Hubs are more likely to have lower investment amounts, take longer to complete the investment, and have fewer and more diverse investors in their syndicate. These results cannot be explained by observable differences in startup quality. Moreover, we fail to find evidence for co-location (as a mechanism for alleviating agency risk or provision of superior resources), or market power (as an oligopsony mechanism reducing competitive pressures on VC firms) as explanations for these differences. Instead, our analyses suggest a plausible alternative explanation is that non-VC hub startups incur higher search costs when acquiring their initial investment.

Keywords: venture capital, startups, entrepreneurship, mobility

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