VENTURE CAPITAL FORMATION, INVESTMENT, AND REGIONAL INDUSTRIALIZATION

Venture capital is an important element of regional capital formation, technological innovation and regional industrialization. While neoclassical economic theory assumes perfectly free capital markets, geographers have long noted the spatial dimensions of finance and investment. This paper introduces metropolitan-level data on venture capital and develops statistical models for both the location of venture capital (supply) and the spatial distribution of investment (demand). The findings suggest that venture capital is characterized by: (1) high degrees of capital mobility operating through a well-defined spatial structure, (2) investment flows to the areas of greatest opportunity and return on investment, and (3) the development of specialized sources of venture capital supply around both established financial centers and centers of high-technology industry. Geographic proximity is required to reduce uncertainty, compensate for ambiguous information, and minimize investment risk. Investment pooling, or coinvestment, facilitates capital flows, and also loosens the spatial constraint on venture capital. Capital mobility occurs, not through the operation of a free market, but through the network structure of the venture capital industry, which is strongly rooted in geography.