Cross-Border Venture Capital Investments: The Impact of Foreignness on Returns

This study is set against the background of the growing internationalization of venture capital (VC) investing and is the first global comparison of the returns generated by individual domestic and cross-border deals. We examine investments worldwide during 1971 to 2009 and find that cross-border investments significantly underperform compared with equivalent domestic investments. Returns are negatively affected by geographic distances, cultural disparities, and institutional differences between the home and host countries. Returns on cross-border and domestic deals also decline after the late 1990s. International portfolio diversification and the saturation of domestic markets may explain why VC investors make cross-border investments despite poor expected returns.