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  • January 2008
  • Article
  • Journal of Financial Economics

Venture Capital Investment Cycles: The Impact of Public Markets

By: Paul Gompers, Anna Kovner, Josh Lerner and David Scharfstein
  • Format:Print
  • | Pages:23
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Abstract

It is well documented that the venture capital industry is highly volatile and that much of this volatility is associated with shifting valuations and activity in public equity markets. This paper examines how changes in public market signals affected venture capital investing between 1975 and 1998. We find that venture capitalists with the most industry experience increase their investments the most when public market signals become more favorable. Their reaction to an increase is greater than the reaction of venture capital organizations with relatively little industry experience and those with considerable experience but in other industries. The increase in investment rates does not affect the success of these transactions adversely to a significant extent. These findings are consistent with the view that venture capitalists rationally respond to attractive investment opportunities signaled by public market shifts.

Keywords

Market Cycles; Venture Capital; Investment; Experience and Expertise; Public Equity; Volatility; Financial Services Industry

Citation

Gompers, Paul, Anna Kovner, Josh Lerner, and David Scharfstein. "Venture Capital Investment Cycles: The Impact of Public Markets." Journal of Financial Economics 87, no. 1 (January 2008): 1–23. (Earlier versions distributed as National Bureau of Economic Research Working Paper No. 11385.)
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About The Authors

Paul A. Gompers

Finance
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Josh Lerner

Entrepreneurial Management
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David S. Scharfstein

Finance
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More from the Authors
  • The Market for CEOs: Evidence from Private Equity By: Paul A. Gompers, Steven N. Kaplan and Vladimir Mukharlyamov
  • Financial Acquisitions By: Josh Lerner, Amit Seru and Jennifer Zou
  • The Globalization of Silicon Valley: The Dynamics of Start-Up Diffusion By: Josh Lerner, Jacob Moscona and David Yang
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