Do local and international venture capitalists play well together? The complementarity of local and international venture capitalists

We find that entrepreneurial firms in emerging nations backed by syndicates composed of international and local venture capitalists have more successful exits and higher post-IPO operating performance than those backed by syndicates of purely international or purely local venture capitalists. We control for the potential endogenous participation and syndication by international VCs using instrumental variables analyses and a natural experiment and find a causal effect of international VC participation on successful outcomes. International VCs face disadvantages in their investments due to the lack of proximity to the entrepreneurial firm. Using air service agreements between countries as an exogenous change in effective proximity, we find that entrepreneurial firms backed by international VCs are more successful when travel becomes easier between the two countries. Overall, our results indicate that the greater venture capital expertise of international venture capitalists and the superior local knowledge and lower monitoring costs of local venture capitalists are both important in obtaining successful investment outcomes.