How Unique Is VC's American History?
Journal of Economic Literature
vol. 61,
no. 1, March 2023
(pp. 274-94)
Abstract
VC: An American History, by Tom Nicholas, offers a compelling chronicle of the development of professional venture capital (VC) in the United States—from VC-like forebearers as diverse as eighteenth-century cotton manufacturing and nineteenth-century whaling up to the state of the modern VC market at the turn of the millennium. The book emphasizes America's enduring advantage in VC as a consequence of these early developments and as a practical governance solution for investing in the long-tailed returns of risky new ventures. In this essay we discuss similar historical precedent and governance arrangements in the spice-trading voyages of the sixteenth- and seventeenth-century Dutch Republic, calling into question the uniqueness of early American VC ancestors. Moreover, far from being a distinguishing feature of early ventures, long-tailed returns exist even in public equities, suggesting that the VC governance structure is about more than the distribution of returns. We conclude that the reasons for American dominance of contemporary VC remain unclear. Picking up where the book leaves off, we summarize facts and trends in twenty-first-century VC.Citation
Korteweg, Arthur, and Berk Sensoy. 2023. "How Unique Is VC's American History?" Journal of Economic Literature, 61 (1): 274-94. DOI: 10.1257/jel.20211576Additional Materials
JEL Classification
- G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
- M13 New Firms; Startups
- N20 Economic History: Financial Markets and Institutions: General, International, or Comparative
- O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O31 Innovation and Invention: Processes and Incentives