"Suppose you want to promote entrepreneurship in a given area," MIT’s Xavier Giroud says. "One policy could be to promote the availability of [more] direct flights between the area and VC hubs."
Okay, entrepreneurs and venture capitalists, here are two words that can help your investment in a startup business succeed: direct flights. A new study co-authored by an MIT professor shows that venture capitalists do help startup firms by closely monitoring their development, and that the availability of direct airplane flights between the two parties helps improve that oversight. Indeed, the introduction of a new airline route directly connecting venture capitalists to fledgling companies in which they have already invested leads to a 3.1 percent increase in the patents those firms are granted, as well as a 5.8 percent increase in the citations those patents receive - compared to equivalent cases where similar investments are made but direct flights never become available. "The effect is that those companies become more innovative," says Xavier Giroud, an associate professor of finance at the MIT Sloan School of Management. The research examines nearly 23,000 startups that worked with more than 3,000 venture capital firms over a 30-year period. The study took into account regional economic trends, to make sure that the successes of startups and the introduction of direct flights were not both themselves the consequence of larger economic developments. The paper detailing the study, "The Impact of Venture Capital Monitoring," will be published in the Journal of Finance .
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