Investment strategies of cross-border venture capital investors

Venture capital (VC) firms investing abroad use several strategies to mitigate liabilities of foreignness (LOF). Analyzing 1770 VC investments in young technology based companies, of which 20% by cross-border VC firms and 7% by their local branches, we confirm that cross-border VC firms invest in companies with lower information asymmetries. This effect disappears when controlling for co-investor characteristics. Cross-border VC firms have a higher probability to invest with local investors, larger investment syndicates and more experienced investors. When investing through a local branch, investors exhibit the same investment behavior as domestic VC firms. We thereby show that local co-investors or establishing a local presence mitigate LOF and enable cross-border investors to invest in the same companies as domestic VC firms