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Handbook of Research on Venture Capital

Edited by Hans Landström

This Handbook provides an excellent overview of our knowledge on the various facets of managerial venture capital research. The book opens with a thorough survey of venture capital as a research field; conceptual, theoretical and geographic aspects are explored, and its pioneers revisited. The focus then shifts to the specific environs of venture capital.
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Chapter 3: Venture Capital: A Geographical Perspective

Colin Mason


Colin Mason Introduction A major focus of applied research on venture capital concerns the ‘equity gap’ – in other words, the lack of availability of small amounts of finance. In the case of formal (or institutional) venture capital funds, because of the fixed nature of most of the costs that investors incur in making investments it is uneconomic for them to make small investments. Informal venture capital investors – or business angels – are able to make small investments because they do not have the overheads of fund managers and do not cost their time in the same way. However, most business angels, even when investing in syndicates alongside other business angels, lack sufficiently ‘deep pockets’ to fully substitute for the lack of venture capital fund investment. Hence, whereas the market for investments of under £250 000/$500 000 is served fairly effectively by business angels, and the over £5m/$10m market is satisfied by venture capital funds, there is a gap in the provision of amounts in the £250 000/$500 000 to £5m/$10m range which are too large for business angels but too small for professional investors. This gap is mostly experienced by new and recently started growing businesses. Governments have responded in a variety of ways in an attempt to increase the supply of small scale, early stage venture capital (see Murray in Chapter 4 and Sohl in Chapter 14). However, much less attention has been given to ‘regional gaps’ in the supply of venture capital...

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