Qubit: Research on VC Syndication Location
According to this recently published paper, VCs close to each other tend to invest together much more often.
But that does not lead to superior returns.
By the way:
There are 257 VC hubs across 38 states, 12 states have no VC hubs
California has the most at 77 hubs, TX has 17, FL 14, PA 13, and MA 13
Within these hubs are 568 walkable zones, or 2.22 walkable zones per hub on average
“Finally, we investigate whether a greater likelihood of in-person interactions is necessarily associated with successful investment collaborations. Using detailed investment round pricing, we measure the success of each VC syndicated deal using its return to exit and exit likelihood. Our analysis indicates that syndicated deals involving VC funds that are located in the same walkable zone are generally less successful than those involving VC funds that are located far from one another. In other words, although in-person interactions may strengthen VC collaboration, this does not lead to valuable information discovery. There appears to be a convenience premium that VCs are willing to pay for sourcing deals from other VCs that they regularly encounter.”
“This initial clustering process identifies 257 VC hubs across 38 states (12 states have no VC hubs). California has the largest number of hubs with 77, followed by 17 in Texas, 14 and 13 in Florida and Pennsylvania in that order, and 13 in Massachusetts. Notably, New York with the second largest number of VC locations after California, comes in at only 6 hubs due to higher density.
The resulting hubs are around 803,000 square metres or 7 times smaller in area than the US zip codes they intersect with on average (KS test D score of 0.57, significant at ≤0.1%), being 744 metres wide on average, at their widest point. This means that the hubs are smaller than zip code areas on average, even after removing the larger zip codes in rural areas. While the hubs do not conform to administrative boundaries, they capture the dispersion of office locations well. This is especially important for capturing hubs formed organically across administrative boundaries.”
“The result is 132 walkable zones in the year 2000, steadily increasing to 568 in 2020, as VCs open new offices and new entrants establish funds. There are 2.22 walkable zones on average in any hub, and their areas average 168,657 square metres, following a roughly scale-free distribution, with mean diameter of 441 metres, while each zone contains 4.14 investors on average.”
Source:
Does Being In-Person Matter? Evidence from Venture Capital Syndication
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