We show that venture capitalists' (VCs) on-site involvement with their portfolio companies leads to an increase in (1) innovation and (2) the likelihood of a successful exit. We rule out selection effects by exploiting an exogenous source of variation in VC involvement: the introduction of new airline routes that reduce VCs' travel times to their existing portfolio companies. We confirm the importance of this channel by conducting a large-scale survey of VCs, of whom almost 90% indicate that direct flights increase their interaction with their portfolio companies and management, and help them better understand companies' activities.
Bernstein, Shai, Xavier Giroud, and Richard Townsend. "The Impact of Venture Capital Monitoring." Journal of Finance 71, no. 4 (2016): 1591-1622.
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