What Lures Cross-Border Venture Capital Inflows?

We investigate if economic factors drive gross and net cross-border venture capital inflows differently. Using a dataset of venture capital investments in European and North American countries from 2000 to 2008, we find that higher expected economic growth goes hand in hand with higher gross as well as net inflows, while higher market capitalization and a more favorable environment for venture capital intermediation entail higher gross inflows, but lower net inflows. The latter two findings may suggest that crossborder venture capital inflows partly compensate for potential limits in domestic venture capital supply. However, the findings may also reflect that venture capitalists' locational decisions depend on the viability of capital markets