The spatial clustering of science and capital: Accounting for biotech firm-venture capital relationships

This paper focuses on the spatial concentration of two essential factors of production in the commercial field of biotechnology: ideas and money. The location of both research-intensive biotech firms and the venture capital firms that fund biotech is highly clustered in a handful of key US regions. The commercialization of a new medicine and the financing of a high-risk start-up firm are both activities that have an identifiable timeline, and often involve collaboration with multiple participants. The importance of tacit knowledge, face-to-face contact, and the ability to learn and manage across multiple projects are critical reasons for the continuing importance of geographic propinquity in biotech. Over the period 1988-99, more than half of the US biotech firms received locally-based venture funding. Those firms receiving non-local support were older, larger and had moved research projects further along the commercialization process. Similarly, as venture capital firms grow older and bigger, they invest in more non-local firms. But these patterns have a strong regional basis, with notable differences between Boston, New York and West Coast money. Biotechnology is unusual in its dual dependence on basic science and venture financing; other fields in which product development is not as dependent on the underlying science may have different spatial patterns.