Destinations hoping to encourage the flourishing of startup hubs may want to note a significant US study that finds that direct flights help venture capitalists (VC) visit their investments more often.
Professors from the MIT Sloan School of Management, Stanford University’s Graduate School of Business, and Dartmouth’s Tuck School of Business studied 22,896 startups that were invested in by more than 3,158 VC firms across three decades.
The researchers noted that VCs often had to fly to visit their investments. About 9,000 startups in the study were based more than 500 miles from their lead VC. About half of the US startups total studied were outside of Northern California, New England, and New York.
The introduction of direct flights between VC hubs and startups led to a measurable rise in successful exits and innovations. The startups benefiting from direct flights were 1% more likely to list on a stock market and 1.4% more likely to either do that or be acquired than startups less reachable by air for VCs.
The study measured innovation by using patents as a proxy. Adding a direct airline route between where venture capitalists work and the locations of their portfolio companies led to a 3.1% increase in the patents those startups were granted.
These patents were relatively high-quality innovations in the eyes of industry, on the whole, given that they received many citations in the literature. Startups with direct flights to VC hubs had 5.8% more citations those those who didn't.
The study's authors wrote:
"Most of the effects we observe occur between 12 and 24 months after the introduction of the new airline routes."
The researchers defined VC hubs as wherever they saw clusters of VC offices. About 70% were in California, Massachusetts, and New York, but about a fifth were outside of the US, with the rest scattered in the US.
The study is notable for splitting up and comparing startups that are otherwise equivalent and received comparable investments and whose only difference was that direct flights to VCs were or were not available. According to the researchers, the study of data between 1977 through 2006 took into account regional economic trends, to make sure that larger economic developments weren't to explain for the gains.
One conclusion to draw from this study is that, if you're an entrepreneur, you may want to try to locate near an airport that is a significant airline hub with many direct flights. That may increase the odds of enabling VCs to be more hands-on.
Destinations eager to encourage the success of local startups who take the study to heart might discuss lobbying airlines for more direct flights between their areas and VC hubs.
If they do, they will likely face headwinds. Direct flights, in aggregate, are getting rarer in the US. One explanation is that airline mergers that have led to reductions in service on some less profitable routes and a push to optimize routes, experts say.
For example, routes between San Jose and Los Angeles, which are not obscure locations, have seen reductions in service in recent years.
The study is available online.
NB: Route map courtesy United. Flight image by Hernán Piñera/Flickr via Creative Commons.