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Financing Ventures

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  • Jeremy Greenwood
  • Pengfei Han
  • Juan M. Sánchez

Abstract

The relationship between venture capital (VC) and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of financing, venture capitalists evaluate the viability of startups. If viable, venture capitalists provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about VC: statistics by funding round concerning success rates, failure rates, investment rates, equity shares, and initial public offering values. The increased efficiency offered by VC for financing inventive startups is important for long‐run growth and welfare.

Suggested Citation

  • Jeremy Greenwood & Pengfei Han & Juan M. Sánchez, 2022. "Financing Ventures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1021-1053, August.
    • Handle: RePEc:wly:iecrev:v:63:y:2022:i:3:p:1021-1053
    DOI: 10.1111/iere.12561
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    References listed on IDEAS

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    Cited by:

    1. Juan M. Sanchez, 2019. "Tax Cuts, Venture Capital, and Long-Term Growth," Economic Synopses, Federal Reserve Bank of St. Louis, issue 22, August.
    2. Murat Celik & Xu Tian, 2018. "Corporate Governance, Managerial Compensation, and Disruptive Innovations," 2018 Meeting Papers 590, Society for Economic Dynamics.

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    More about this item

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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