Investing locally is a mantra of many venture firms.  The desire to conveniently monitor, interact, and network with their portfolio companies has lead to some long return trips for out-of-town entrepreneurs.  Now a recent working paper suggests that the Think Global, Invest Local view is bunk.  Among the findings: investments in regions where a venture firm has no presence outperform investments in regions where they have an established office.  Nor is there any difference by stage – despite the general belief that a Series A round demands more consistent monitoring, the adverse effect of local investments was the same for both early-stage and growth companies.

As the paper points out, a possible suggestion for this data is the higher hurdle rate required for an out-of-region investment.  For a venture firm, the Partner’s willingness to endure some travel hardship often indicates a higher attraction to a company then just stopping by the CEO’s office on the next Starbucks run. Consistent with this thesis, the study also found that once a venture firm has made an investment in a region, future investments in the same locale have lower returns.  Once the marginal cost of monitoring has dropped (2 birds, one flight), returns follow suit.

But before advising an entrepreneur to set up shop in a remote location, the paper also notes that venture firms located in the traditional VC centers (San Francisco, Boston, and New York — which together host over half of all firms in the study, and a substantially higher percentage of dollars) still outperform their fly-over-country peers.  Paradoxically, the superior returns are primarily due to non-local investments in peripheral locations.  So the next time a venture professional tells you he wants to stay local, ask him about the best vacation he’s ever had, if it was worth the trip to get there — and if he’d do it once very few weeks.