Working Paper: NBER ID: w26196
Authors: Ufuk Akcigit; Emin Dinlersoz; Jeremy Greenwood; Veronika Penciakova
Abstract: Venture capital (VC) and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and initial patent quality than non-VC-backed ones. VC-backing increases a startup’s likelihood of reaching the right tails of the firm size and innovation distributions. Furthermore, outcomes are better for startups matched with more experienced venture capitalists. An endogenous growth model, where venture capitalists provide both expertise and financing for business startups, is constructed to match these facts. The presence of venture capital, the degree of assortative matching between startups and financiers, and the taxation of VC-backed startups matter significantly for growth.
Keywords: Venture Capital; Growth; Innovation; Firm Size
JEL Codes: G24; O31; O32; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| VC backing (G24) | higher early growth rates (O13) |
| VC backing (G24) | initial patent quality (L15) |
| experience of VCs (G24) | improved outcomes for firms (L25) |
| initial VC support (Y20) | enhanced innovation outcomes (O36) |
| presence of VC (G24) | overall economic growth (O49) |
| degree of assortative matching (C78) | overall economic growth (O49) |
| taxation of VC-backed firms (H25) | overall economic growth (O49) |
| increasing efficiency of VC financing (G24) | economic growth rates (O49) |
| altering tax structures for VC-backed startups (H25) | economic growth (O49) |