Informal venture capital (IVC) market, which consists of private individuals investing equity capital in unquoted ventures to which they don’t have any family connections, has often been described as a local market. Individuals tend to invest in their geographical proximity for several reasons, including the local nature of information on potential deals, the need to monitor due to agency risk and informal investors’ tendency to engage in post-investment involvement. What has not been given much attention in the literature is why, given the importance of geographical proximity in IVC investing, a considerable portion of IVC investments nevertheless occur over distance? This paper sets out to explain the role of proximity in IVC investments, aiming to contribute to better understanding of spatial dynamics of IVC market.

The argument developed in this paper is that the need for geographical proximity is context-dependent and relies on the setting in which the investment is undertaken. I argue that geography is only one of the multiple dimensions of proximity and can be fully or partially substituted by non-spatial dimensions of proximity. Those are: social proximity (socially embedded relations between actors); cognitive proximity (shared knowledge, understandings and language); and institutional proximity (common habits, routines, established practices and rules of behaviour).