DETERMINANTS OF VENTURE CAPITAL FIRMS PREFERENCES REGARDING THE INDUSTRY DIVERSITY AND GEOGRAPHIC SCOPE OF THEIR INVESTMENTS

This article examines why individual venture capital firms (VCFs) prefer varying degrees of industry diversity and geographic scope in their venture investments. Hypotheses linking four factors-stage of venture financing. VCFs' ownership structure. VCF size, and type of financing-to pursuit of diversity and scope are advanced and empirically tested. Analysis of data on 169 VCFs reveals that (1) VCFs specializing in early stage financing prefer less industry diversity and narrower geographic scope relative to other VCFs. (2) corporate VCFs (i.e., those owned by non-financial corporations), prefer less industry diversity but broader geographic scope relative to non-corporate VCFs. (3) larger VCFs prefer greater industry diversity and broader geographic scope than do smaller VCFs. and (4) provision of small business investment companies (SBIC) financing by the VCF has no impact on preference regarding industry diversity but is associated with preference for narrower geographic scope.