Cross-Border Venture Capital’s Role in Venture International Innovation Volume and Direction

Cross-border venture capital (CBVC) investors from countries different from the venture’s home country have been found to support the internationalization of their portfolio ventures. However, with resource-scarce ventures frequently facing trade-offs between investments in internationalization and innovation, an important but so far omitted question is whether CBVC investors can help their portfolio ventures overcome this tradeoff and support their international innovation activities. Focusing on new innovative ventures with VC funding, we posit that this internationalization support of CBVC investors can increase ventures’ international innovation post-investment. Moreover, we hypothesize that the direction of new ventures’ international innovation is driven toward the CBVC investors’ home countries. We test these hypotheses using a sample of innovative European entrepreneurial ventures, applying Poisson regression models with multiple levels of fixed effects and novel innovation-based internationalization measures. We find support for the hypothesized effect of CBVC investors on the volume of international innovation. Furthermore, leveraging a gravity-style research design with multi-dimensional fixed effects, we find that venture innovation is directed toward CBVCs’ home markets. Our findings contribute to the literature on international entrepreneurship, CBVC, and international innovation of new ventures.