Silicon valley's ‘one-hour’ distance rule and managing return on location

<title>Abstract</title> We question the popular contention of a ‘one-hour’ rule of venture capital investing using data from two studies. A survey of 20 Silicon Valley (SV) venture capital general partners representing 122 portfolio firms finds 52% of their round one deals are done with exclusively SV firms (firms with no outside locations), 30% are done exclusively outside of the SV, and 18% are headquartered in the SV but also have locations elsewhere. A broader study of 3 826 SV venture capital deals finds 42% of round one deals are done with SV headquartered firms (this includes both exclusively SV deals and deals where only the headquarters is in the SV). There are significant effects for the industry of the portfolio company (high tech firms are more likely to be located in the SV) and the age of the venture capital firm, with younger firms roaming further a field in some cases. We describe ‘return on location’ (ROI) as a crucial component of due diligence, and consider the role that virtual management can play in mitigating distance issues. Six prominent Silicon Valley venture capitalists provide insights on the results.