The spatial clustering of innovation and venture capital

1
The spatial clustering of innovation and venture
capital

• Purpose
• Subject and research question
• Theoretical approach

2
Project focus

• The knowledge-based economy/new economy
• Two characteristic features
• 1) Venture Capital - vital for financing
  innovation and entrepreneurship
• 2) Venture Capital - clustered in larger cities
  (network and agglomeration)

3
Research questions

• How well developed is the venture capital market
  in different regions/cities in Norway and how are
  different investors as owners?
• What competitive advantages have large cities for
  developing specialised financial functions?
• Is there a large variation in the financing of
  knowledge-based firms in the different
  regions/cities?
• What role can public policy play in developing
  venture capital markets?

4
Venture capital

• Financing high-risk and high-return businesses
  (innovation/NTBFs)
• Long timeframe (3-7 year investment)
• Hands-on investment
• Returns - capital gains not dividends
• Venture capital firms/Business angels

5
Theory and research

• Financial theory
• Economic geography
• Economic sociology

6
The embeddedness approach

• Economic transactions are embedded in social
  relation and networks
• The structure of relationships influence
  VC-investments for two reasons
• Information of investments opportunities
• Evaluation of investments opportunities

7
Strength of interpersonal ties

• Amount of time
• The emotional intensity
• The intimacy (mutual confiding)
• The reciprocal service
• (Granovetter 1973)

8
Social relations and ties

• How social embeddedness affects an organisations
  acquisition and cost of financial capital
• Arms-length ties (weak ties)
• Socially embedded ties (strong ties)
• (Granovetter 1973, 1985, Uzzi 1996, 1999)

9
Arms-length ties

• Lean and sporadic transactions
• The main propositions related to arms-length
  ties is that they determine the degree to which
  an actor can access heterogeneous information in
  a market (Uzzi 1999482)

10
Socially embedded ties

• Strong, personal and frequent relations
• Transfer of private resources and information and
  self-enforcing governance
• Information that must be voluntarily transferred
  in an exchange
• (Uzzi 1999483)

11
Geographical explanations of spatial
concentration

• Labour market externalities
• Demand for intermediate services
• Technological spillovers
• Socio-cultural factors

12
Sociological explanations of spatial
concentration

• Spatial clustering of social and professional
  relations
• Entrepreneurial process - embedded relations
  among relevant actors
• Timely, reliable and high-quality information
  produce localised pattern of exchange (Sorenson
  and Stuart 2001)