Geography, creative workforce and access to venture capital

• Published in: Managerial finance Vol. 50; no. 9; pp. 1557 - 1577
• Main Authors: Goktan, Mehmet Sinan, Ucar, Erdem
• Format: Journal Article
• Language: English
• Published: Patrington Emerald Publishing Limited 12-08-2024; Emerald Group Publishing Limited
• Subjects: Culture; Economic activity; Entrepreneurs; Entrepreneurship; Geography; Innovations; Private equity; Venture capital; Workforce; United States > US; Geodemographics; Private companies; Financial markets
• ISSN: 0307-4358; 1758-7743
• DOI: 10.1108/MF-11-2023-0708

PurposeThe purpose of this study is to investigate how proximity to metropolitan areas and local creative talent impact a company’s access to venture capital (VC). We analyze the interplay between these factors and test our hypotheses using USA county data.Design/methodology/approachThis empirical study uses multivariate regression analyses to analyze VC investment distribution across the USA at the county level between the years 1990–2011.FindingsOur findings suggest that an increase in the local creative workforce correlates with higher levels of VC funding, regardless of metro location, but has a more significant impact in metro areas, indicating the complementary nature of these factors. Furthermore, the tech industry benefits more from the local creative workforce and is less sensitive to geographic location. Our results suggest that non-metro locations with a rich local creative culture can be as effective in attracting VC as metro locations with a mediocre local creative culture. This study contributes to our understanding of the optimal geographic location for companies seeking VC.Research limitations/implicationsOne of the limitations of our research is the research timeline. Since “creative class” was not measured by the U.S. Department of Agriculture (USDA) after 2011, we cannot analyze the recent effects of creative class on VC. However, given the fact that technology-related industries increasingly dominated the VC industry in recent years, our results on tech-related industries can shed light on the future expectations of the creative class in the VC industry moving forward.Practical implicationsSome companies might find it advantageous to locate outside metro areas where the creative workforce is more abundant and accessible. Our results support this trend by demonstrating that companies must consider the tradeoff between these two factors and recognize that locating in metro areas may not always be the optimal choice for every company. A tradeoff may exist between location and the cost of accessing creative talent.Social implicationsOur results suggest that non-metro locations with a rich local creative culture can be as effective in attracting VC as metro locations with a mediocre local creative culture.Originality/valueThe existing literature emphasizes the importance of studying various factors that can help distribute VC and entrepreneurial activities across the country instead of just being concentrated in specific areas like metro regions. Although previous studies have examined broader institutional and country-level factors, local creative culture has not been considered in the context of its impact on the geographical distribution of VC. Our research highlights creative culture as a new local factor that affects VC distribution among USA counties.