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This Policy Brief is based on "Buy Local? The Geography of Successful and Venture Capital Expansion" a paper by Henry Chen, Paul Gompers, Anna Kovner, and Lerner that appeared in the January 2010 issue of theJournal of Urban Economicsand in Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed—and What to Do About It, a book by Lerner published in 2009 by the Princeton University Press.
More than half of the 1,000 venture capital offices listed in Pratt’s Guide to Private Equity and Venture Capital Sourcesare located in just three metropolitan areas: San Francisco, Boston, and New York. More than 49 percent of the U.S.-based companies financed by venture capital firms are located in these same three regions, which suggests that venture capital plays a primary role in fostering entrepreneurial communities in their home regions. Reflecting this awareness, states and municipalities increasingly are trying to encourage the establishment and growth of venture capital communities in their regions. Thus, it is vitally important to understand the geography of venture capital, its association with success of the underlying portfolio companies, and what, if anything, the public sector can do to facilitate venture capital investments in particular locales.