When venture capital comes to town: Local ecosystem effects beyond funded ventures
Steven Poelhekke & Benjamin Wache
Abstract
When venture capital (VC) investment flows into a local economy, does it yield economic activity beyond the receiving ventures? While a large literature studies the effect of VC investments on venture-level activity, its consequences for broader economic activity are less well understood. We study the effect of VC investment flows on destination county employment, wages, and venture creation, using a novel instrument based on the ‘social connectedness’ of counties to major non-local sources of VC investment. Using detailed data on investor-to-venture VC flows, we find substantial positive effects: using instrumental-variable estimates, each million dollars invested into a county yields approximately one new venture, 41 jobs, and seven million dollars in payroll. We also document positive spillovers across industries, particularly toward those supplying VC-backed ventures—thereby contributing to the resource munificence of the local economy and its entrepreneurial ecosystem. • We study effects of VC flows across the US on destination-county economic activity. • We combine FE with a novel IV: social connectedness to major non-local sources of VC. • Each million $ invested yields at least 1 venture, 41 jobs, and 7 mln $ in payroll. • Effects spread beyond VC-receiving ventures to other industries through spillovers. • Supplier services benefit, helping to grow the local entrepreneurial ecosystem.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.50 × 0.4 = 0.20 |
| M · momentum | 0.50 × 0.15 = 0.07 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.