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Under what conditions do venture capital markets emerge

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  • Schertler, Andrea

Abstract

Venture capital activity differs considerably across countries. Venture capital markets are highly developed in few countries, while these markets are almost nonexistent in many other countries. This paper examines the conditions that have to be fulfilled for liquid venture capital markets to emerge. Using a general equilibrium model, two necessary conditions are identified. First, value added by venture capitalists' active involvement must be high compared to the costs of management support. Second, the number of high-technology enterprises demanding venture capital must exceed a critical level. The paper discusses how differences in financial and innovation systems affect these two conditions.

Suggested Citation

  • Schertler, Andrea, 2002. "Under what conditions do venture capital markets emerge," Kiel Working Papers 1119, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1119
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
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    Cited by:

    1. Christian Schröder, 2009. "Financial System and Innovations-Determinants of Early Stage Venture Capital in Europe," Schumpeter Discussion Papers sdp09004, Universitätsbibliothek Wuppertal, University Library.
    2. Schertler, Andrea, 2002. "Path dependencies in venture capital markets," Kiel Working Papers 1120, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    Management support; high-technology enterprises; venture capital finance;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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