GROUNDED CAPITAL: THE GEOGRAPHIC NATURE OF VENTURE FINANCING IN THE UNITED STATES

January 2001

Matthew Zook
University of California, Berkeley

 

 

A number of researchers have demonstrated that rather than simply dispersing, the Internet in fact has exhibited an uneven spatial pattern throughout the United States and world. Although the use of the Internet is rapidly decentralizing, the majority of Internet industry firms remain concentrated in key locations in the United States. This pattern of uneven territorial distribution of the Internet industry is demostrated in this paper with the introduction of two new indicators, the location of top web sites and the location of dot-com firms.

This paper uses this distribution as the dependent variable in a multivariate regression of a number of regional attributes that are often used to explain the location of new and innovative industries. This analysis shows that one variable in particular, venture capital investing, has played an important role in determining the location of the Internet industry. Although capital is often described as footloose and fungible, the manner in which venture capital investing takes place is strongly tied to location. The ability of venture capital to create successful Internet content firms is dependent upon regional systems of personal contacts and networks through which scarce information is quickly exchanged, flexibility is maintained and resources can be invested expeditiously.

 

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With support from the National Science Foundation, under the Urban Research Initiative
(C) 1999, 2000, 2001 Taub Urban Research Center, New York University
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