Path Dependencies in Venture Capital Markets

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Path Dependencies in Venture Capital Markets

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Andrea Schertler

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Andrea Schertler

Abstract

This paper examines the impact of venture capitalistsÂ’ reputation building and experience accumulation on the genesis of venture capital markets. Venture capitalists must accumulate experience to successfully support high-technology enterprises. They must build reputation, i.e., a track record for successfully financing high-technology enterprises, in order to raise new funds from outside investors that have little information about the profitability of venture capital investments. Simulations are used to solve the model. The simulation results demonstrate that reputation building and experience accumulation lead to path dependencies: if venture capitalists lack experience, successive waves of unsuccessful venture-capital-backed enterprises undermine the genesis of venture capital markets.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1120.

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Length: 37 pages
Date of creation: Jul 2002
Date of revision:
Handle: RePEc:kie:kieliw:1120

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Find related papers by JEL classification:
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Black, Bernard S. & Gilson, Ronald J., 1998. "Venture capital and the structure of capital markets: banks versus stock markets," Journal of Financial Economics, Elsevier, vol. 47(3), pages 243-277, March. [Downloadable!] (restricted)
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Other versions:
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Kanniainen, V. & Keuschnigg, C., 2001. "Start-up Investment With Scarce Venture Capital Support," University of Helsinki, Department of Economics 503, Department of Economics.
Other versions:
- Vesa Kanniainen & Christian Keuschnigg, 2001. "Start-Up Investment with Scarce Venture Capital Support," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Andrea Schertler, 2002. "Comparative Advantages of Public Loan and Public Equity Schemes in Venture Capital Markets," Kiel Working Papers 1118, Kiel Institute for the World Economy. [Downloadable!]
José Martí Pellón & Marina Balboa, 2003. "Characterisation Of The Reputation Of Private Equity Managers: Evidence In Spain," Working Papers. Serie EC 2003-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
Michael Stolpe, 2003. "Distribution Dynamics in European Venture Capital," Kiel Working Papers 1191, Kiel Institute for the World Economy. [Downloadable!]

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