Grounded capital: venture financing and the geography of the Internet industry, 1994-2000

Despite the rhetoric in the popular and business press trumpetingthe removal of ‘the limitations of geography’, anumber of researchers have demonstrated that rather than simplydispersing, the Internet in fact exhibits an uneven spatialpattern throughout the United States and world. Using a combinationof interview and regression methodologies, this article arguesthat the regional distribution of venture capital investingplayed a central role in determining the location of new Internetstartups. This was largely due to the premium that entrepreneursplaced on one of the hallmarks of venture capital, i.e. speed,and the reliance of venture capitalists upon local networksand knowledge for their investments. The ability to providethese types of value-added inputs in a timely manner is greatlyassisted by geographic proximity. Rather than being an easilymoved and fungible commodity, venture capital investing dependsupon non-monetary inputs such as knowledge about possible investmentsand prefers to be close to companies in order to monitor andassist them. Thus, despite telecommunications technologies andglobal financial markets that have vastly expanded the geographicrange of economic interaction, regions remain central to economicdevelopment in the current economy.