Syndication Networks and the Spatial Distribution of Venture Capital Investments

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Abstract
Sociological investigations of economic exchange reveal how institutions and social structures shape transaction patterns among economic actors. This article explores how interfirm networks in the U.S. venture capital (VC) market affect spatial patterns of exchange. Evidence suggests that information about potential investment opportunities generally circulates within geographic and industry spaces. In turn, the circumscribed flow of information within these spaces contributes to the geographic‐ and industry‐localization of VC investments. Empirical analyses demonstrate that the social networks in the VC community—built up through the industry’s extensive use of syndicated investing—diffuse information across boundaries and therefore expand the spatial radius of exchange. Venture capitalists that build axial positions in the industry’s coinvestment network invest more frequently in spatially distant companies. Thus, variation in actors’ positioning within the structure of the market appears to differentiate market participants’ ability to overcome boundaries that otherwise would curtail exchange.