Importance of Spatial Proximity betweenVenture Capital Investors and Investees in Germany

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