Start-up Financing, Entry and Innovation

Charles Parry

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

Abstract: I develop and estimate an equilibrium model of the VC market to quantify distortions and explain cross-country differences in VC activity. The model maps directly to observable start-up funding histories and outcomes, facilitating estimation. For US start-ups first funded in 2005–2015, my estimates suggest that 40% shut down despite having positive continuation value; with continued funding, half would achieve a successful exit. In the UK, the model attributes the gap in activity to the US to financing conditions and acquisition opportunities, and counterfactuals suggest there may be gains to retargeting existing government support towards late-stage start-ups.

Keywords: Start-Ups; Innovation; Venture Capital (search for similar items in EconPapers)
JEL-codes: G24 G32 L26 O31 (search for similar items in EconPapers)
Date: 2026-08-31
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2682

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