Working Paper: NBER ID: w24808
Authors: Jeremy Greenwood; Pengfei Han; Juan M. Sanchez
Abstract: The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of financing, venture capitalists evaluate the viability of startups. If viable, venture capitalists provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital: statistics by funding round concerning success rates, failure rates, investment rates, equity shares, and IPO values. The increased efficiency offered by venture capital for financing inventive startups is important for long-run growth and welfare.
Keywords: Venture Capital; Economic Growth; Dynamic Contracts; Innovation
JEL Codes: E13; E22; G24; L26; O16; O31; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Venture capital (VC) funding (G24) | Economic growth (O49) |
| Venture capital (VC) funding (G24) | Quality-adjusted patenting activity (O34) |
| Higher capital gains tax rates (F38) | Venture capital (VC) funding (G24) |
| Venture capital (VC) funding (G24) | Firm growth and innovation (O31) |
| Tax policy (H29) | Venture capital (VC) activity (G24) |
| Venture capital (VC) activity (G24) | Economic growth (O49) |