Pioneering excellence or fleeing mediocracy? Why venture capital firms internationalize

Abstract

Research Summary: Theories and empirical evidence on the competitive motives for VC internationalization are unclear and contradictory. In our study, we adopt a performance feedback perspective to explain VC firms' motives to venture abroad. We leverage unique peer-performance data on 295 VC funds and 2954 VC investments and find support for our hypotheses that performance below (a) peer, (b) historical, or (c) market aspiration levels drives VCs exodus to (a) foreign and (b) more distant markets. Our study complements theories on internationalization with an organization ecology perspective that acknowledges internationalization as an attempt at adaptation triggered by poor performance. Managerial Summary: Venture capitalists (VC) are not just owners, but take an active role in shaping their portfolio companies' strategies. This causes them to favor investments in their geographic and psychic proximity to allow hands-on business development. Nevertheless, the share of cross-border investments by VCs has risen steadily in past years. Our research shows that this internationalization is not solely driven by pioneering and successful VCs but oftentimes by VCs struggling to achieve performance levels. This notion of internationalization by the weakest has important firm-level consequences.