Working Paper: NBER ID: w11385
Authors: Paul Gompers; Anna Kovner; Josh Lerner; David Scharfstein
Abstract: It is well documented that the venture capital industry is highly volatile and that much of this volatility is associated with shifting valuations and activity in public equity markets. This paper examines how changes in public market signals affected venture capital investing between 1975 and 1998. We find that venture capitalists with the most industry experience increase their investments the most when public market signals become more favorable. Their reaction to an increase is greater than the reaction of venture capital organizations with relatively little industry experience and those with considerable experience but in other industries. The increase in investment rates does not affect the success of these transactions adversely to a significant extent. These findings are consistent with the view that venture capitalists rationally respond to attractive investment opportunities signaled by public market shifts.
Keywords: Venture Capital; Public Markets; Investment Cycles
JEL Codes: G2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Venture capitalists with significant industry experience (G24) | Investment activity (G31) |
| Investment activity (G31) | Success of transactions (L14) |
| Volatility in venture capital investment activity (G24) | Changes in fundamental investment opportunities (G19) |