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Understanding global flows of venture capital: Human networks as the 'carrier wave' of globalization
As the world economy emerges from the current recession, the drivers and dynamics of globalization continue to intrigue scholars and practitioners alike. The study "Understanding global flows of venture capital: Human networks as the 'carrier wave' of globalization," published as the lead paper in the volume 40 of the Journal of International Business Studies (pp. 1241-1259), addresses an important question about the origins of globalization: While we know that capital and labor mobility are correlates of globalization, what role do people movements and the associated networks play in bringing about industry globalization? Coauthors Ravi Madhavan, associate professor of business administration at the University of Pittsburgh's Joseph M. Katz Graduate School of Business and College of Business Administration, and Akie Iriyama, assistant professor in the Department of Operations Management and Strategy at the University at Buffalo School of Management, suggest that transnational technical communities-groups of professional immigrants active in both home- and host-country technical networks-are an important "carrier wave" of globalization in the venture capital industry. The study, funded in part by the Katz School's International Business Center, was motivated by a seeming anomaly in the world of venture capital. Though observers and participants tend to view venture capital as a highly local business, recent data suggest a dramatic increase in cross-border flows of venture capital. In fact, the overseas share of investments by U.S. venture capitalists has grown significantly over the last several years. In the venture capital industry, deep technical knowledge and trusted connections are critical and therefore people networks become an important mechanism. Madhavan's and Iriyama's data show that the rate at which U.S. venture capital is invested in startups in other countries is predicted by the rate of professional immigration from those countries to the United States, with a time lag of several years. This finding is consistent with a story of professional immigrants taking several years to study and work in the United States and accumulate financial and social capital, before beginning to help U.S. venture capital find promising investment opportunities overseas. In a world in which both venture capital and innovation are global, these people networks have become sources of competitive advantage for U.S. venture capitalists.