On the Return to Venture Capital

Boyan Jovanovic () and Balàzs Szentes

No 12874, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide a model that links the high return to venture equity to the impatience of the VCs. VCs are scarce, and hence, they have market power and a high return on their investments. As a result, VCs are eager to terminate non-performing ventures so they can move on to new ones. The scarcity of VCs enables them to internalize their social value, and the competitive equilibrium is socially optimal. We estimate the model and back out the return of solo entrepreneurs which is always below that of the return of VCs.

JEL-codes: G24 L26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent and nep-ppm
Date: 2007-01
Note: PR CF
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