Venture Capital Investment Patterns : Implications for Regional Economic Development

This thesis investigates the role of venture capital in regional economic development and presents results from a national survey of venture capital firms concerning the existence of capital gaps in the venture capital markets. In order to explore these issues, the author lays out the theoretical underpinnings of venture capital-oriented indigenous growth strategies and assesses the relationship of such strategies to small-firm employment arguments. The author provides further context by discussing the institutional boundaries of the venture capital industry. Analysis of the survey results offers evidence concerning the nature of venture capital gaps. The author argues that venture capital is a critical component of innovation-based localization economies. As such, it enables high factor-cost regions to remain competitive by counteracting the negative effects of the product/profit life cycle. However, the venture capital industry's size, cyclicality, and import-export characteristics place bounds on the industry's possibilities with regard to regional economic development. Changes in the industry's fund sources provide a plausible explanation for the existence of capital gaps in the face of booming investment. The author finds evidence that capital gaps exist by investment stage and size. Industry and regional gaps are found to be probable as well. The author concludes by recommending that policymakers resolve impediments to venture capital financing through small-scale interventions and countercyclical public sector investment. Thesis Supervisor: Karl Seidman Title: Lecturer, Department of Urban Studies and Planning First Reader: Karen R. Polenske Title: Professor of Urban Studies and Planning Second Reader: Alvaro E. Pereira Title: Lecturer, Department of Urban Studies and Planning