A widespread assumption is that U.S. venture capitalists source their best
investments locally, so out-of-state venture funds are at a disadvantage in
relation to local competitors. This assumption drives most venture funds to
focus their investments on local companies. The study reported here tested this
hypothesis by analyzing IPO rates by the state of venture-funded companies for
the past 25 years. Locally funded companies actually achieved a lower average
IPO rate than that of nationally funded companies. Therefore, venture funds
should seek to capitalize on any local advantage but should also seek to balance
their investments by diversifying geographically.