Ending the Mending Wall: Exploring Entrepreneur - Venture Capitalist Co-Location in New Itventures

Venture capitalists and the entrepreneurs they fund are observed to be co-located in order to enable both parties to extract value from their respective investments. This co-location may be relaxed in different conditions. In this paper, we explore conditions under which entrepreneurs not co-located with venture capitalists are still funded. Using the mechanisms of legitimacy and efficiency, we show that fashionability of the entrepreneurial venture’s technology or product can lead to venture funding when the entrepreneur and the VC are not co-located. Similarly, entrepreneurs who are co-located with a highly visible business partner or who possess original intellectual property also have higher odds of funding when not co-located with the focal VC. Finally, we show that these effects are heightened during the Internet boom of 1995-2000, characterized by mimetic contagion. The analysis is conducted on a sample of 44,057 new ITbased ventures funded in North America between 1985 and 2006.