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The Venture Capital Revolution

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  • Paul Gompers
  • Josh Lerner

Abstract

Venture capital has emerged as an important intermediary in financial markets, providing capital to young high-technology firms that might have otherwise gone unfunded. Venture capitalists have developed a variety of mechanisms to overcome the problems that emerge at each stage of the investment process. At the same time, the venture capital process is also subject to various pathologies from time to time, which can create problems for investors or entrepreneurs. This article reviews the recent empirical literature on these organizations and points out area where further research is needed.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.15.2.145
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 15 (2001)
Issue (Month): 2 (Spring)
Pages: 145-168

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Handle: RePEc:aea:jecper:v:15:y:2001:i:2:p:145-168

Note: DOI: 10.1257/jep.15.2.145
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  1. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(4), pages 691-719, August.
  2. Williamson, Oliver E, 1983. "Organization Form, Residual Claimants, and Corporate Control," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 26(2), pages 351-66, June.
  3. Josh Lerner, 1996. "The Government as Venture Capitalist: The Long-Run Effects of the SBIR Program," NBER Working Papers 5753, National Bureau of Economic Research, Inc.
  4. Martin, John D. & Petty, J. William, 1983. "An Analysis of the Performance of Publicly Traded Venture Capital Companies," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 18(03), pages 401-410, September.
  5. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 26(2), pages 301-25, June.
  6. Black, Bernard S. & Gilson, Ronald J., 1998. "Venture capital and the structure of capital markets: banks versus stock markets," Journal of Financial Economics, Elsevier, Elsevier, vol. 47(3), pages 243-277, March.
  7. Lerner, Joshua, 1998. ""Angel" financing and public policy: An overview," Journal of Banking & Finance, Elsevier, Elsevier, vol. 22(6-8), pages 773-783, August.
  8. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 22(1), pages 43-58.
  9. Jeng, Leslie A. & Wells, Philippe C., 2000. "The determinants of venture capital funding: evidence across countries," Journal of Corporate Finance, Elsevier, Elsevier, vol. 6(3), pages 241-289, September.
  10. Oliver Hart & John Moore, 1997. "Default and Renegotiation: A Dynamic Model of Debt," STICERD - Theoretical Economics Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE /1997/321, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  11. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, Elsevier, vol. 5(2), pages 147-175, November.
  12. Yuk-Shee Chan., 1982. "On the Positive Role of Financial Intermediation in Allocation of Venture Capital in a Market with Imperfect Information," Research Program in Finance Working Papers, University of California at Berkeley 127, University of California at Berkeley.
  13. Gompers, Paul & Lerner, Josh, 1996. "The Use of Covenants: An Empirical Analysis of Venture Partnership Agreements," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 39(2), pages 463-98, October.
  14. Gompers, Paul & Lerner, Josh, 2000. "Money chasing deals? The impact of fund inflows on private equity valuation," Journal of Financial Economics, Elsevier, Elsevier, vol. 55(2), pages 281-325, February.
  15. Cornelli, Francesca & Yosha, Oved, 1997. "Stage Financing and the Role of Convertible Debt," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1735, C.E.P.R. Discussion Papers.
  16. Paul Gompers & Josh Lerner, 1998. "Venture Capital Distributions: Short-Run and Long-Run Reactions," Journal of Finance, American Finance Association, American Finance Association, vol. 53(6), pages 2161-2183, December.
  17. Cornelli, F. & Yosha, O., 1997. "Stage Financing and the Role of Convertible Debt," Papers, Tel Aviv 23-97, Tel Aviv.
  18. Douglas A. Irwin & Peter J. Klenow, 1994. "High Tech R&D Subsidies: Estimating the Effects of Sematech," NBER Working Papers 4974, National Bureau of Economic Research, Inc.
  19. Kaplan, Steven & Strömberg, Per Johan, 2000. "Financial Contracting Theory Meets The Real World: An Empirical Analysis Of Venture Capital Contracts," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2421, C.E.P.R. Discussion Papers.
  20. James M. Poterba, 1988. "Venture Capital and Capital Gains Taxation," Working papers 508, Massachusetts Institute of Technology (MIT), Department of Economics.
  21. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(4), pages 305-360, October.
  22. Poterba, James M., 1987. "How burdensome are capital gains taxes?: Evidence from the United States," Journal of Public Economics, Elsevier, Elsevier, vol. 33(2), pages 157-172, July.
  23. Samuel Kortum & Josh Lerner, 1998. "Does Venture Capital Spur Innovation?," NBER Working Papers 6846, National Bureau of Economic Research, Inc.
  24. Hellmann, Thomas & Puri, Manju, 2000. "The Interaction between Product Market and Financing Strategy: The Role of Venture Capital," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 13(4), pages 959-84.
  25. Gompers, Paul A., 1996. "Grandstanding in the venture capital industry," Journal of Financial Economics, Elsevier, Elsevier, vol. 42(1), pages 133-156, September.
  26. Gompers, Paul & Lerner, Josh, 1999. "An analysis of compensation in the U.S. venture capital partnership," Journal of Financial Economics, Elsevier, Elsevier, vol. 51(1), pages 3-44, January.
  27. Joshua Lerner, 1994. "The Syndication of Venture Capital Investments," Financial Management, Financial Management Association, Financial Management Association, vol. 23(3), Fall.
  28. Lerner, Joshua, 1994. "Venture capitalists and the decision to go public," Journal of Financial Economics, Elsevier, Elsevier, vol. 35(3), pages 293-316, June.
  29. Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, American Finance Association, vol. 50(1), pages 301-18, March.
  30. Michael E. Porter, 1992. "Capital Choices: Changing The Way America Invests In Industry," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 5(2), pages 4-16.
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