The Impact of Venture Capital Monitoring

We show that venture capitalists' (VCs) on-site involvement with their portfolio companies leads to an increase in both innovation and the likelihood of a successful exit. We rule out selection effects by exploiting an exogenous source of variation in VC involvement: the introduction of new air...

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Bibliographic Details
Published in:The Journal of finance (New York) 2016-08, Vol.71 (4), p.1591-1622
Main Authors: BERNSTEIN, SHAI, GIROUD, XAVIER, TOWNSEND, RICHARD R.
Format: Article
Language:English
Subjects:
Air routes
Airlines
Corporate mergers
Financial portfolios
Innovation
Innovations
Investors
Market exit
Roads
Routes
Statistical significance
Studies
Travel time
Vehicular flight
Venture capital
Venture capital companies
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Summary:We show that venture capitalists' (VCs) on-site involvement with their portfolio companies leads to an increase in both innovation and the likelihood of a successful exit. We rule out selection effects by exploiting an exogenous source of variation in VC involvement: the introduction of new airline routes that reduce VCs' travel times to their existing portfolio companies. We confirm the importance of this channel by conducting a large-scale survey of VCs, of whom almost 90% indicate that direct flights increase their interaction with their portfolio companies and management, and help them better understand companies' activities.
ISSN:0022-1082
1540-6261
DOI:10.1111/jofi.12370