What is the effect of the financial crisis on venture capital financing? Empirical evidence from US Internet start-ups
AbstractEmploying a large dataset of venture capital investments in US Internet firms, we analyse the effect of the current financial crisis on the venture capital market. Using regression analysis, we find that the financial crisis is associated with a 20% decrease in the average amount of funds raised per funding round. This effect, however, can only be found in later funding rounds. We argue that firms in later financing rounds that need capital to survive cannot avoid a deduction induced by the financial crisis, whereas firms that seek initial funding postpone their funding and expansion plans until the capital markets have stabilized. Furthermore, firms in later phases of the venture cycle are more likely to be negatively affected by the weak IPO market than firms seeking initial funding. Our results suggest that the financial crisis can lead to a severe ‘funding gap’ in the financing of technological development and innovation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Venture Capital.
Volume (Year): 11 (2009)
Issue (Month): 4 (June)
Contact details of provider:
Web page: http://www.tandfonline.com/TVEC20
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Oliver Alexy & Joern Block & Philipp Sandner & Anne Ter Wal, 2012. "Social capital of venture capitalists and start-up funding," Small Business Economics, Springer, Springer, vol. 39(4), pages 835-851, November.
- Alexy, O.T. & Block, J.H. & Sandner, P.G. & Ter Wal, A.L.J., 2010. "The Social Capital of Venture Capitalists and Its Impact on the Funding of Start-Up Firms," ERIM Report Series Research in Management, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasm ERS-2010-028-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
- Block, Joern H. & De Vries, Geertjan & Schumann, Jan H. & Sandner, Philipp, 2014. "Trademarks and venture capital valuation," Journal of Business Venturing, Elsevier, vol. 29(4), pages 525-542.
- Block, Joern H. & Jaskiewicz, Peter & Miller, Danny, 2011. "Ownership versus management effects on performance in family and founder companies: A Bayesian reconciliation," Journal of Family Business Strategy, Elsevier, vol. 2(4), pages 232-245.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.