Theory and Evidence
Industrial Dynamics, Entrepreneurship and Innovation series
Edited by David B. Audretsch, Robert E. Litan and Robert Strom
Chapter 2: Globalization of Venture Capital: A Vernon-Dunning Synthesis with Deal-by-Deal Data on Information Technology
Catherine L. Mann INTRODUCTION This chapter uses data on individual venture capital (VC) deals to information technology firms to take a detailed look at the globalization of venture capital. The framework for analysis draws on two classic models of product innovation and globalization – Vernon’s product cycle of innovation and globalization and Dunning’s OLI framework for global ownership and production. The information technology sector is the target of analysis both because the pace of innovation is quite rapid, and because the globalization of production and demand is well advanced. Therefore, evidence on the global production–innovation–ownership nexus may be observed over the relatively short time span of the available data. There is significant evidence of a product–innovation cycle in the nature of what venture capital finances in its own home market in the United States. Considering deal-by-deal data on software, US VCs invest in young US firms that are engaged in innovative and cutting-edge software applications that are demanded by firms overall in the US economy. For ‘older’ more commoditized software, there is some evidence of globalized production with US VCs financing foreign firms, although in general these are not start-up firms. When venture capital goes abroad, there is strong evidence of a foreign innovation–ownership pattern. US venture capital invests in young foreign firms where demand patterns point to fastest market growth, and concentrate on investing in firms in host economies when there appears to be specific niche skills. There is little to no evidence that US venture...
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