Venture Capital's Role in Financing Innovation: What We Know and How Much We Still Need to Learn
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AbstractVenture capital is associated with some of the most high-growth and influential firms in the world. Academics and practitioners have effectively articulated the strengths of the venture model. At the same time, venture capital financing also has real limitations in its ability to advance substantial technological change. Three issues are particularly concerning to us: 1) the very narrow band of technological innovations that fit the requirements of institutional venture capital investors; 2) the relatively small number of venture capital investors who hold and shape the direction of a substantial fraction of capital that is deployed into financing radical technological change; and 3) the relaxation in recent years of the intense emphasis on corporate governance by venture capital firms. While our ability to assess the social welfare impact of venture capital remains nascent, we hope that this article will stimulate discussion of and research into these questions.
CitationLerner, Josh, and Ramana Nanda. 2020. "Venture Capital's Role in Financing Innovation: What We Know and How Much We Still Need to Learn." Journal of Economic Perspectives, 34 (3): 237-61. DOI: 10.1257/jep.34.3.237
- D22 Firm Behavior: Empirical Analysis
- G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- O31 Innovation and Invention: Processes and Incentives