Effect of Financial Clusters on Startup Mergers and Acquisitions

The conventional wisdom has maintained that being in proximity to entrepreneurial ecosystems helps startups to raise financing, develop and grow. In this paper, we examine the effect of a major component of an entrepreneurial ecosystem-financial or venture capital clusters on the exit of a startup through mergers and acquisitions (M&A). We find that probability of successful exit through M&A increases if the venture capitalist invested in the startup is in a venture capital (VC) cluster. Location of the startup in a top VC cluster is not significant for success once we control for the location of the VC in a top VC cluster.Our results are robust to different specifications of the models that use different time periods, reputation of VC, industry, and the quality of the startup company. Our results provide evidence for VCs, startups and policy makers who want to better understand the components of entrepreneurial ecosystems and their relation to the M&A exits of startups.