Venture Capital’s Role in Financing Innovation: What We Know and How Much We Still Need to Learn
- 1 August 2020
- journal article
- research article
- Published by American Economic Association in Journal of Economic Perspectives
- Vol. 34 (3), 237-261
- https://doi.org/10.1257/jep.34.3.237
Abstract
Venture capital is associated with some of the most high-growth and influential firms in the world. Academics and practitioners have effectively articulated the strengths of the venture model. At the same time, venture capital financing also has real limitations in its ability to advance substantial technological change. Three issues are particularly concerning to us: 1) the very narrow band of technological innovations that fit the requirements of institutional venture capital investors; 2) the relatively small number of venture capital investors who hold and shape the direction of a substantial fraction of capital that is deployed into financing radical technological change; and 3) the relaxation in recent years of the intense emphasis on corporate governance by venture capital firms. While our ability to assess the social welfare impact of venture capital remains nascent, we hope that this article will stimulate discussion of and research into these questions.Keywords
This publication has 36 references indexed in Scilit:
- The Burden of the Nondiversifiable Risk of EntrepreneurshipThe American Economic Review, 2010
- The Effect of SOX Section 404: Costs, Earnings Quality, and Stock PricesThe Journal of Finance, 2010
- The Economics of Private Equity FundsThe Review of Financial Studies, 2010
- Should Investors Bet on the Jockey or the Horse? Evidence from the Evolution of Firms from Early Business Plans to Public CompaniesThe Journal of Finance, 2009
- How Smart Is Smart Money? A Two‐Sided Matching Model of Venture CapitalThe Journal of Finance, 2007
- Characteristics, Contracts, and Actions: Evidence from Venture Capitalist AnalysesThe Journal of Finance, 2004
- Venture Capital and the Professionalization of Start‐Up Firms: Empirical EvidenceThe Journal of Finance, 2002
- The Interaction between Product Market and Financing Strategy: The Role of Venture CapitalThe Review of Financial Studies, 2000
- The Allocation of Control Rights in Venture Capital ContractsThe RAND Journal of Economics, 1998
- Venture Capitalists and the Oversight of Private FirmsThe Journal of Finance, 1995