Easier Access to Venture Capital in Silicon Valley: Some Empirical Evidence

Abstract

Spurred by the remarkable growth of Silicon Valley prior to the Internet bubble, state policymakers throughout the country decided to boost the availability of venture capital to local start-up companies. This paper argues that there is still a great deal to learn from empirical data about the role of the venture capital industry in Silicon Valley. It is shown that Silicon Valley received a large proportion of the nation's total venture capital investment during 1992-2001 and that start-ups in Silicon Valley appear to have easier access to venture capital. They receive the first round of venture capital at a younger age and complete more rounds of venture capital financing. This easier access to capital has a significant effect on start-up performance in Silicon Valley. While the easier access may simply be a result of the higher supply of monetary capital in Silicon Valley, it is also consistent with the view that venture capital in Silicon Valley comes with more human and social capital.