Dynamics of High-Growth Young Firms and the Role of Venture Capitalists

Yoshiki Ando

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: Motivated by the substantial growth and upfront investments of venture capital (VC) backed firms observed in administrative US Census data, this paper develops a firm dynamics model over the life cycle. In the model, startups choose the source of financing from VC, Angel investors, or banks, depending on their growth potential, and invest in innovation. The calibrated model explains the life-cycle dynamics of firms with different sources of financing and implies that venture capitalists’ advice accounts for around 22% of the growth of VC-backed firms. A counterfactual economy without VC financing would lose aggregate consumption by around 0.4%.

Keywords: Venture capital; firm dynamics; innovation; upfront investment; defaultable debt; endogenous sorting (search for similar items in EconPapers)
JEL-codes: D22 D25 E22 G24 G30 O32 (search for similar items in EconPapers)
Date: 2025-06
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-sbm and nep-tid
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https://www2.census.gov/library/working-papers/2025/adrm/ces/CES-WP-25-38.pdf First version, 2025 (application/pdf)

Related works:
Working Paper: Dynamics of High-Growth Young Firms and the Role of Venture Capitalists (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:25-38

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