The researchers reveal that cross-border VC deals tend to come at a cost to founders, because foreign investors are less familiar with the local business environment, and often demand a discount in return for the added risk they assume.

The study, however, finds that when VCs invest within their own domestic ecosystems, startups enjoy significantly higher valuations – thanks to the VCs' deeper understanding of local institutions, norms, and networks.

This research was conducted by Peter Wirtz, Professor of Strategy and Innovation at emlyon business school, who wanted to determine whether the origin of VC funding impacts the value of a startup.

To examine this, the researchers studied a dataset covering over 600 specific investor – startup pairings in the European startup space, over a 20-year period.

The researcher found that local VCs offer higher valuations due to deeper ecosystem familiarity and lower perceived risk. Whilst, foreign VCs often trade valuation for deal security, unless entering markets with strong legal protections and institutional maturity.

However, not all cross-border capital is created equal. The study shows that the negative valuation impact of foreign investment can be mitigated in countries with strong institutional safeguards and competitive ecosystems. These attributes help build investor confidence and reduce the valuation discount foreign VCs might otherwise impose.

“Where the money comes from matters,” says Professor Peter Wirtz. “Local venture capitalists are more comfortable with local conditions – whether that’s market dynamics, regulatory frameworks, or cultural nuances. That familiarity gives them the confidence to invest more decisively, and in many cases, it translates into higher valuations for entrepreneurs.”

The researcher also found that capital alone isn’t enough. Institutional and regulatory strength matters more than sheer VC market liquidity when it comes to investing.

The findings carry important implications for founders, investors, and policymakers. Entrepreneurs in emerging or underserved ecosystems may seek foreign investment – but should understand the potential valuation trade-offs.

Meanwhile, policymakers can drive startup valuations by focusing on legal reform, ecosystem development, and reducing cross-border investment frictions.

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