Importance of Spatial Proximity between Venture Capital Investors and Investees in Germany

Based on 1182 dyads of venture capitalists and German portfolio companies involved in a financing round between 2002 and 2007, we examine the importance of spatial proximity between investors and investees in a dense economy. We find that the probability of a financing relationship decreases by 8% if the journey time increases by one standard deviation. For deals involving very small or very large investment sums, for less experienced venture capitalists and for lead investors, spatial proximity is particularly important. Our results suggest that even in economies with a dense infrastructure like Germany spatial proximity between investor and investee impacts the likelihood of an investment