IDEAS home Printed from https://ideas.repec.org/p/zbw/ifwkwp/1120.html
   My bibliography  Save this paper

Path dependencies in venture capital markets

Author

Listed:
  • Schertler, Andrea

Abstract

This paper examines the impact of venture capitalists' 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.

Suggested Citation

  • Schertler, Andrea, 2002. "Path dependencies in venture capital markets," Kiel Working Papers 1120, Kiel Institute for the World Economy (IfW Kiel).
  • Handle: RePEc:zbw:ifwkwp:1120
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/17758/1/352216735.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Schertler, Andrea, 2002. "Under what conditions do venture capital markets emerge," Kiel Working Papers 1119, Kiel Institute for the World Economy (IfW Kiel).
    2. Boyd, John & Smith, Bruce, 1996. "The Coevolution of the Real and Financial Sectors in the Growth Process," The World Bank Economic Review, World Bank, vol. 10(2), pages 371-396, May.
    3. Becker, Ralf & Hellmann, Thomas F., 2000. "The Genesis of Venture Capital: Lessons from the German Experience," Research Papers 1705, Stanford University, Graduate School of Business.
    4. Christian Keuschnigg, 2004. "Venture Capital Backed Growth," Journal of Economic Growth, Springer, vol. 9(2), pages 239-261, June.
    5. 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.
    6. Bencivenga, Valerie R. & Smith, Bruce D., 1998. "Economic development and financial depth in a model with costly financial intermediation," Research in Economics, Elsevier, vol. 52(4), pages 363-386, December.
    7. Kanniainen, Vesa & Keuschnigg, Christian, 2004. "Start-up investment with scarce venture capital support," Journal of Banking & Finance, Elsevier, vol. 28(8), pages 1935-1959, August.
    8. Gompers, Paul A., 1996. "Grandstanding in the venture capital industry," Journal of Financial Economics, Elsevier, vol. 42(1), pages 133-156, September.
    9. Lerner, Joshua, 1994. "Venture capitalists and the decision to go public," Journal of Financial Economics, Elsevier, vol. 35(3), pages 293-316, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Balboa, Marina & Marti, Jose, 2007. "Factors that determine the reputation of private equity managers in developing markets," Journal of Business Venturing, Elsevier, vol. 22(4), pages 453-480, July.
    2. Stolpe, Michael, 2003. "Distribution dynamics in European venture capital," Kiel Working Papers 1191, Kiel Institute for the World Economy (IfW Kiel).
    3. Ekkehardt Bauer & Hans-Peter Burghof, 2007. "The Economics of State Subsidies in Early Stage Financing," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 14(3), pages 433-457.
    4. Schertler, Andrea, 2002. "Comparative Advantages of Public Loan and Public Equity Schemes in Venture Capital Markets," Kiel Working Papers 1118, Kiel Institute for the World Economy (IfW Kiel).
    5. Michael Peneder, 2013. "Von den "trockenen Tälern" der Risiko- und Wachstumsfinanzierung," WIFO Monatsberichte (monthly reports), WIFO, vol. 86(8), pages 637-648, August.
    6. Wolf, Björn, 2006. "Empirische Untersuchung zu den Einflussfaktoren der Finanzierungsprobleme junger Unternehmen in Deutschland und deren Auswirkungen auf die Wirtschaftspolitik," Working Papers "Firms and Region" U1/2006, Fraunhofer Institute for Systems and Innovation Research (ISI).
    7. Roland Füss & Denis Schweizer, 2012. "Short and long-term interactions between venture capital returns and the macroeconomy: evidence for the United States," Review of Quantitative Finance and Accounting, Springer, vol. 38(3), pages 391-410, April.
    8. Michael Peneder, 2006. "Venture Capital: Ergebnisse internationaler Wirkungsanalysen," WIFO Monatsberichte (monthly reports), WIFO, vol. 79(3), pages 161-172, March.
    9. 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).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ali-Yrkkö, Jyrki & Hyytinen, Ari & Liukkonen, Johanna, 2001. "Exiting Venture Capital Investments: Lessons from Finland," Discussion Papers 781, The Research Institute of the Finnish Economy.
    2. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 573-648, Elsevier.
    3. Laura Bottazzi & Marco da Rin, 2003. "Financing Entrepreneurial Firms in Europe: Facts, Issues, and Research Agenda," CESifo Working Paper Series 958, CESifo.
    4. Wang, Lanfang & Wang, Susheng, 2012. "Economic freedom and cross-border venture capital performance," Journal of Empirical Finance, Elsevier, vol. 19(1), pages 26-50.
    5. Cumming, D. & Johan, S.A., 2005. "Is it the law or the lawyers? Investment fund covenants," Discussion Paper 2005-005, Tilburg University, Tilburg Law and Economic Center.
    6. Cumming, Douglas & Fleming, Grant & Schwienbacher, Armin, 2006. "Legality and venture capital exits," Journal of Corporate Finance, Elsevier, vol. 12(2), pages 214-245, January.
    7. Chortareas, Georgios E. & Girardone, Claudia & Ventouri, Alexia, 2013. "Financial freedom and bank efficiency: Evidence from the European Union," Journal of Banking & Finance, Elsevier, vol. 37(4), pages 1223-1231.
    8. Douglas Cumming & Sofia Johan, 2006. "Is it the Law or the Lawyers? Investment Covenants around the World," European Financial Management, European Financial Management Association, vol. 12(4), pages 535-574, September.
    9. Tykvová, Tereza & Walz, Uwe, 2004. "Are IPOs of Different VCs Different?," ZEW Discussion Papers 04-32, ZEW - Leibniz Centre for European Economic Research.
    10. Krohmer, Philipp & Lauterbach, Rainer & Calanog, Victor, 2009. "The bright and dark side of staging: Investment performance and the varying motivations of private equity firms," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1597-1609, September.
    11. Douglas Cumming & Grant Fleming & Armin Schwienbacher, 2009. "Style Drift in Private Equity," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(5‐6), pages 645-678, June.
    12. Lohwasser, Todor S., 2020. "Meta-analyzing the relative performance of venture capital-backed firms," Discussion Papers of the Institute for Organisational Economics 4/2020, University of Münster, Institute for Organisational Economics.
    13. Hall, Bronwyn H. & Lerner, Josh, 2010. "The Financing of R&D and Innovation," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 609-639, Elsevier.
    14. John Armour & Douglas Cumming, 2004. "The Legal Road To Replicating Silicon Valley," Working Papers wp281, Centre for Business Research, University of Cambridge.
    15. Christian Keuschnigg, 2008. "Tax Policy for Venture Capital Backed Entrepreneurship," University of St. Gallen Department of Economics working paper series 2008 2008-07, Department of Economics, University of St. Gallen.
    16. Christian Keuschnigg & Søren Bo Nielsen, 2003. "Public Policy for Start-up Entrepreneurship with Venture Capital and Bank Finance," CESifo Working Paper Series 850, CESifo.
    17. Hsu, Hung-Chia Scott, 2013. "Technology timing of IPOs and venture capital incubation," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 36-55.
    18. Giot, Pierre & Schwienbacher, Armin, 2007. "IPOs, trade sales and liquidations: Modelling venture capital exits using survival analysis," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 679-702, March.
    19. Sun, Yue & Uchida, Konari & Matsumoto, Mamoru, 2013. "The dark side of independent venture capitalists: Evidence from Japan," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 279-300.
    20. Robin Boadway & Oana Secrieru & Marianne Vigneault, 2005. "A Search Model of Venture Capital, Entrepreneurship, and Unemployment," Staff Working Papers 05-24, Bank of Canada.

    More about this item

    Keywords

    Reputation building; experience accumulation; dynamic efficiency; path dependencies; venture capital;
    All these keywords.

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:ifwkwp:1120. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/iwkiede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.