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Doing well by doing good? Community development venture capital

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  • Anna Kovner
  • Josh Lerner

Abstract

This paper examines the investments and performance of community development venture capital (CDVC). We find substantial differences between CDVC and traditional venture capital (VC) investments: CDVC investments are far more likely to be in nonmetropolitan regions and in regions with little prior venture capital activity. Moreover, CDVC is likely to be in earlier-stage investments and in industries outside the venture capital mainstream that have lower probabilities of successful exit. Even after we control for this unattractive transaction mix, the probability of a CDVC investment being successfully exited is lower. One benefit of CDVCs may be their effect in bringing traditional VC investment to underserved regions: When we control for the presence of traditional VC investments, each additional CDVC investment results in an additional 0.06 new traditional VC firm in a region.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 572.

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Date of creation: 2012
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Handle: RePEc:fip:fednsr:572

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Keywords: Community development ; Venture capital ; Investments;

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  1. Manju Puri & Rebecca Zarutskie, 2008. "On the Lifecycle Dynamics of Venture-Capital- and Non-Venture-Capital-Financed Firms," Working Papers 08-13, Center for Economic Studies, U.S. Census Bureau.
  2. Paul Gompers & Anna Kovner & Josh Lerner, 2007. "Specialization and Success: Evidence from Venture Capital," NBER Chapters, in: Entrepreneurship: Strategy and Structure National Bureau of Economic Research, Inc.
  3. Samuel Kortum & Josh Lerner, 2000. "Assessing the Contribution of Venture Capital to Innovation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 674-692, Winter.
  4. Agrawal, Ajay & Kapur, Devesh & McHale, John, 2008. "How do spatial and social proximity influence knowledge flows? Evidence from patent data," Journal of Urban Economics, Elsevier, vol. 64(2), pages 258-269, September.
  5. Henry Chen & Paul Gompers & Anna Kovner & Josh Lerner, 2009. "Buy Local? The Geography of Successful and Unsuccessful Venture Capital Expansion," NBER Working Papers 15102, National Bureau of Economic Research, Inc.
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