Study on venture capital investments flows in the Journal of Business Venturing

Abstract

When venture capital (VC) investment flows into a local economy, does it yield economic activity beyond the receiving ventures? While a large literature studies the effect of VC investments on venture-level activity, its consequences for broader economic activity are less well understood. We study the effect of VC investment flows on destination county employment, wages, and venture creation, using a novel instrument based on the ‘social connectedness’ of counties to major non-local sources of VC investment. Using detailed data on investor-to-venture VC flows, we find substantial positive effects: using instrumental-variable estimates, each million dollars invested into a county yields approximately one new venture, 41 jobs, and seven million dollars in payroll. We also document positive spillovers across industries, particularly toward those supplying VC-backed ventures—thereby contributing to the resource munificence of the local economy and its entrepreneurial ecosystem.

Article citation

Steven Poelhekke and Benjamin Wache, 'When venture capital comes to town: Local ecosystem effects beyond funded ventures,' Journal of Business Venturing, Volume 41, Issue 3, doi.org/10.1016/j.jbusvent.2026.106588.