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Venture Capital Booms and Startup Financing

William Janeway, Ramana Nanda and Matthew Rhodes-Kropf

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: We review the growing literature on the relationship between venture capital booms and startup financing, focusing on three broad areas: First, we discuss the drivers of large inflows into the venture capital asset class, particularly in recent years -- which are related to but also distinct from macroeconomic business cycles and stock market fluctuations. Second, we review the emerging literature on the real effects of venture capital financing booms. A particular focus of this work is to highlight the potential impact that booms (and busts) can have on the types of firms that VCs choose to fund and terms at which they are funded, independent of investment opportunities -- thereby shaping the trajectory of innovation being conducted by startups. Third, an important insight from recent research is that booms in venture capital financing are not just a temporal phenomenon but can also be seen in terms of the concentration of VC investment in certain industries and geographies. We also review the role of government policy, exploring the degree to which it can explain the concentration of VC funding in the US over the past forty years in just two broad areas – information and communication technologies (ICT) and biotechnology. We conclude by highlighting promising areas of further research.

Keywords: Venture capital; start-ups; innovation (search for similar items in EconPapers)
JEL-codes: G24 L26 M13 O30 (search for similar items in EconPapers)
Date: 2021-06-03
New Economics Papers: this item is included in nep-cfn, nep-cwa, nep-ent, nep-fdg, nep-ict and nep-sbm
Note: whj20
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Venture Capital Booms and Start-Up Financing (2021) Downloads
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