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Path Dependencies in Venture Capital Markets

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  • Andrea Schertler

Abstract

This paper examines the impact of venture capitalistsÂ’ reputation building and experience accumulation on the genesis of venture capital markets. Venture capitalists must accumulate experience to successfully support high-technology enterprises. They must build reputation, i.e., a track record for successfully financing high-technology enterprises, in order to raise new funds from outside investors that have little information about the profitability of venture capital investments. Simulations are used to solve the model. The simulation results demonstrate that reputation building and experience accumulation lead to path dependencies: if venture capitalists lack experience, successive waves of unsuccessful venture-capital-backed enterprises undermine the genesis of venture capital markets.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1120.

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Length: 37 pages
Date of creation: Jul 2002
Date of revision:
Handle: RePEc:kie:kieliw:1120

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Related research

Keywords: Reputation building; experience accumulation; dynamic efficiency; path dependencies; venture capital;

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References

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  1. Keuschnigg, Christian & Nielsen, Soren Bo, 2000. "Tax Policy, Venture Capital and Entrepreneurship," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2626, C.E.P.R. Discussion Papers.
  2. Christian Keuschnigg, 2004. "Venture Capital Backed Growth," Journal of Economic Growth, Springer, Springer, vol. 9(2), pages 239-261, 06.
  3. 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.
  4. Vesa Kanniainen & Christian Keuschnigg, 2001. "Start-Up Investment with Scarce Venture Capital Support," CESifo Working Paper Series 439, CESifo Group Munich.
  5. John H. Boyd & Bruce D. Smith, 1996. "The co-evolution of the real and financial sectors in the growth process," Working Papers, Federal Reserve Bank of Minneapolis 541, Federal Reserve Bank of Minneapolis.
  6. Cooley, Thomas F. & Smith, Bruce D., 1998. "Financial markets, specialization, and learning by doing," Research in Economics, Elsevier, Elsevier, vol. 52(4), pages 333-361, December.
  7. Bencivenga, Valerie R. & Smith, Bruce D., 1998. "Economic development and financial depth in a model with costly financial intermediation," Research in Economics, Elsevier, Elsevier, vol. 52(4), pages 363-386, December.
  8. Ralf Becker & Thomas Hellmann, 2003. "The Genesis of Venture Capital - Lessons from the German Experience," CESifo Working Paper Series 883, CESifo Group Munich.
  9. Lerner, Joshua, 1994. "Venture capitalists and the decision to go public," Journal of Financial Economics, Elsevier, Elsevier, vol. 35(3), pages 293-316, June.
  10. Gompers, Paul A., 1996. "Grandstanding in the venture capital industry," Journal of Financial Economics, Elsevier, Elsevier, vol. 42(1), pages 133-156, September.
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Citations

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Cited by:
  1. Andrea Schertler, 2002. "Comparative Advantages of Public Loan and Public Equity Schemes in Venture Capital Markets," Kiel Working Papers 1118, Kiel Institute for the World Economy.
  2. Wolf, Björn, 2006. "Empirische Untersuchung zu den Einflussfaktoren der Finanzierungsprobleme junger Unternehmen in Deutschland und deren Auswirkungen auf die Wirtschaftspolitik," Working Papers "Firms and Region" U1/2006, Fraunhofer Institute for Systems and Innovation Research (ISI).
  3. Roland Füss & Denis Schweizer, 2012. "Short and long-term interactions between venture capital returns and the macroeconomy: evidence for the United States," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 38(3), pages 391-410, April.
  4. José Martí Pellón & Marina Balboa, 2003. "Characterisation Of The Reputation Of Private Equity Managers: Evidence In Spain," Working Papers. Serie EC, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2003-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Balboa, Marina & Marti, Jose, 2007. "Factors that determine the reputation of private equity managers in developing markets," Journal of Business Venturing, Elsevier, vol. 22(4), pages 453-480, July.
  6. Michael Stolpe, 2003. "Distribution Dynamics in European Venture Capital," Kiel Working Papers 1191, Kiel Institute for the World Economy.

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