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  • 2021
  • Working Paper
  • HBS Working Paper Series

Venture Capital Booms and Startup Financing

By: William Janeway, Ramana Nanda and Matthew Rhodes-Kropf
  • Format:Print
  • | Language:English
  • | Pages:22
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Abstract

We review the growing literature on the relationship between venture capital booms and startup financing, focusing on three broad areas: First, we discuss the drivers of large inflows into the venture capital asset class, particularly in recent years—which are related to but also distinct from macroeconomic business cycles and stock market fluctuations. Second, we review the emerging literature on the real effects of venture capital financing booms. A particular focus of this work is to highlight the potential impact that booms (and busts) can have on the types of firms that VCs choose to fund and terms at which they are funded, independent of investment opportunities—thereby shaping the trajectory of innovation being conducted by startups. Third, an important insight from recent research is that booms in venture capital financing are not just a temporal phenomenon but can also be seen in terms of the concentration of VC investment in certain industries and geographies. We also review the role of government policy, exploring the degree to which it can explain the concentration of VC funding in the U.S. over the past forty years in just two broad areas—information and communication technologies (ICT) and biotechnology. We conclude by highlighting promising areas of further research.

Keywords

Venture Capital; Business Startups; Financing and Loans; Innovation and Invention; Government and Politics; Policy

Citation

Janeway, William, Ramana Nanda, and Matthew Rhodes-Kropf. "Venture Capital Booms and Startup Financing." Harvard Business School Working Paper, No. 21-116, April 2021. (Forthcoming in Annual Review of Financial Economics.)
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About The Author

Ramana Nanda

Entrepreneurial Management
→More Publications

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More from the Authors
  • House Prices, Home Equity and Entrepreneurship: Evidence from U.S. Census Micro Data By: Sari Pekkala Kerr, William R. Kerr and Ramana Nanda
  • Are Transformational Ideas Harder to Fund? Resource Allocation to R&D Projects at a Global Pharmaceutical Firm By: Joshua Krieger and Ramana Nanda
  • Investment Committee Voting and the Financing of Innovation By: Andrey Malenko, Ramana Nanda, Matthew Rhodes-Kropf and Savitar Sundaresan
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