Do VCs contribute to the innovation and success of their portfolio companies, or do they merely select companies that are already poised to innovate and succeed even absent their involvement? To address this question, we exploit exogenous variation in VC involvement stemming from the introduction of new airline routes that reduce the travel time between VCs and their existing portfolio companies, thereby holding company selection fixed. We find that, within an existing VC-company relationship, reductions in travel time lead to increased innovation and a higher likelihood of an IPO. These effects concentrate in routes that connect portfolio companies with their lead VC, as opposed to other investors. Overall, the results indicate that VC involvement is an important determinant of innovation and success.

JEL Classification: D81, G24, L26, M13, O31, O32
Keywords: Venture Capital, Monitoring, Innovation, IPO