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Research their portfolio companies, the start- ups are more likely to go public and enjoy higher operating performanc- es in their initial public offering year," says Tian. Their long-term survival after the IPO is also more assured, he says. That doesn't mean that startups VCs Can't Make Up For Distance When it comes to relationships between startups and venture capital (VC) firms, distance does not make hearts grow fonder—or profits bigger— according to a study by Xuan Tian, assistant professor of finance at Indiana University's Kelley School of Business in Bloomington. In- stead, too much distance between these firms can lead to costly increases in financing. Tian looked at 10,000 startups that went public between 1980 and 2005, analyzing their financial performance in relation to how far their offices were from those of their investors. He found that the closer VCs are to the startups they fund, the better they monitor and manage the startup's activ- ity. That reduces the need for more frequent financings and improves overall performance. Xuan Tian 54 "When VC inves- tors are closer to BizEd JANUARY/FEBRUARY 2011 are more likely to fail when they're farther from their investors, Tian finds. But it does mean that VCs often must make up for a lack of face time with entrepreneurs with more frequent rounds of financing. This study indicates that as advanced as communications tech- nologies have become, none are yet able to replicate in-person eye contact and conversation, Tian says. That leaves it up to VCs to develop other, more cost-effective ways to support startup firms outside their regions. "The Causes and Consequences of Venture Capital Stage Financing" is forthcoming in the Journal of Finan- cial Economics. Multinationals Can Leverage Discrimination Many multinational firms face disadvan- tages when they cross borders to enter foreign markets. However, there is one area where they might have the upper hand. In a working paper, three researchers argue that by hiring people whom local com- panies typically exclude from the workplace—mainly women and eth- nic minorities—multinationals can benefit from this pool of talent and gain a competitive edge over their less diverse peers. This finding appears in a working paper written by Jordan Siegel, asso- ciate professor at Harvard Business School in Boston, Massachusetts; Lynn Pyun, a graduate student in urban studies and planning at the Massachusetts Institute of Technol- ogy in Cambridge; and Byung-you Cheon of Hanshin University and a fellow at the Korea Labor Institute in Seoul, South Korea. The researchers interviewed a number of executives from multi- nationals and local firms in South Korea. They also studied the per- formance of multinationals oper- ating in South Korea during the years 2005 and 2007. The majority of these firms were from Europe, U.S., and Japan. The researchers found that a 10 percent nominal increase in the number of female managers a company employs results in a 1 percent nominal increase in its return on assets. However, there also is a downside to hiring from culturally excluded groups. Companies that do so can risk being alienated from local busi- ness networks. "Multinationals entering such markets must decide whether to aggressively hire and promote the excluded group, thus reaping the benefits of their under- utilized talent, or to conform to local practice and avoid provoking bigoted policy makers, executives, purchasers and/or supply agents," the authors write. When it comes to hiring women, the authors admit that their find- ings may apply only in countries where firms have no more than COURTESY OF INDIANA UNIVERSITY CHRISTOPHER ZACHAROW/GETTY IMAGES