Venture capital (VC) firms investing abroad use several strategies to mitigate liabilities of foreignness (LOF). Analyzing 1770 VC investments in young technology based companies, of which 20% by cross-border VC firms and 7% by their local branches, we confirm that cross-border VC firms invest in companies with lower information asymmetries. This effect disappears when controlling for co-investor characteristics. Cross-border VC firms have a higher probability to invest with local investors, larger investment syndicates and more experienced investors. When investing through a local branch, investors exhibit the same investment behavior as domestic VC firms. We thereby show that local co-investors or establishing a local presence mitigate LOF and enable cross-border investors to invest in the same companies as domestic VC firms.
Devigne, David and Manigart, Sophie
"INVESTMENT STRATEGIES OF CROSS-BORDER VENTURE CAPITAL INVESTORS,"
Frontiers of Entrepreneurship Research: Vol. 33
, Article 1.
Available at: http://digitalknowledge.babson.edu/fer/vol33/iss2/1