Working Paper: NBER ID: w27492
Authors: Josh Lerner; Ramana Nanda
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: Venture Capital; Innovation; Governance; Technological Change
JEL Codes: G24; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Venture capital (G24) | Higher likelihood of firm success (L25) |
| Venture capital (G24) | Higher sales (D49) |
| Venture capital (G24) | Lower likelihood of failure (L15) |
| Venture capital (G24) | Enhanced innovation output (O36) |
| Higher rates of patenting (O39) | Increase in patent filings (O34) |
| Easier access to portfolio companies (G24) | Improved performance of companies (L25) |
| Staged financing and active involvement in governance (G34) | Success of portfolio companies (G24) |
| Venture capital (G24) | Higher rates of patenting (O39) |