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It Ain't Broke: The Past, Present, and Future of Venture Capital

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  • Steven N. Kaplan
  • Josh Lerner

Abstract

This article presents a selective history of the U.S. venture capital (VC) industry, a discussion of the current state of the market, and some predictions about where the market is going. There is no doubt that the U.S. venture capital industry has been very successful. The VC model has provided an efficient solution to a difficult problem-that of enabling people with promising ideas but often limited track records to raise capital from outside investors. A large fraction of IPOs, including many of the most successful, have been funded by venture capitalists, and the U.S. VC model has been copied around the world. Copyright Copyright (c) 2010 Morgan Stanley.

Suggested Citation

  • Steven N. Kaplan & Josh Lerner, 2010. "It Ain't Broke: The Past, Present, and Future of Venture Capital," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(2), pages 36-47.
  • Handle: RePEc:bla:jacrfn:v:22:y:2010:i:2:p:36-47
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    References listed on IDEAS

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    1. Ludovic Phalippou & Oliver Gottschalg, 2009. "The Performance of Private Equity Funds," Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1747-1776, April.
    2. Steven N. Kaplan & Per Strömberg, 2004. "Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses," Journal of Finance, American Finance Association, vol. 59(5), pages 2177-2210, October.
    3. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58.
    4. Paul Kedrosky, 2009. "Right-sizing the US venture capital industry-super-†," Venture Capital, Taylor & Francis Journals, vol. 11(4), pages 287-293, June.
    5. Steven N. Kaplan & Antoinette Schoar, 2005. "Private Equity Performance: Returns, Persistence, and Capital Flows," Journal of Finance, American Finance Association, vol. 60(4), pages 1791-1823, August.
    6. Josh Lerner & Antoinette Schoar, 2005. "Does Legal Enforcement Affect Financial Transactions? The Contractual Channel in Private Equity," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 223-246.
    7. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start-Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, February.
    8. 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.
    9. Steven N. Kaplan & Per Stromberg, 2001. "Venture Capitals As Principals: Contracting, Screening, and Monitoring," American Economic Review, American Economic Association, vol. 91(2), pages 426-430, May.
    10. Steven N. Kaplan & Per Stromberg, 2001. "Venture Capitalists As Principals: Contracting, Screening, and Monitoring," NBER Working Papers 8202, National Bureau of Economic Research, Inc.
    11. Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-318, March.
    12. Steven N. Kaplan & Berk A. Sensoy & Per Strömberg, 2009. "Should Investors Bet on the Jockey or the Horse? Evidence from the Evolution of Firms from Early Business Plans to Public Companies," Journal of Finance, American Finance Association, vol. 64(1), pages 75-115, February.
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    Cited by:

    1. Henrekson, Magnus & Sanandaji, Tino, 2013. "Small Business Activity Does not Measure Entrepreneurship," Working Paper Series 959, Research Institute of Industrial Economics, revised 26 Jan 2014.
    2. Stiglitz, Joseph E., 2015. "Leaders and followers: Perspectives on the Nordic model and the economics of innovation," Journal of Public Economics, Elsevier, vol. 127(C), pages 3-16.
    3. Magnus Henrekson & Tino Sanandaji, 2015. "Superentrepreneurship and global imbalances: closing Europe’s gap to other industrialized regions," Chapters,in: The EU’s Role in Fighting Global Imbalances, chapter 4, pages 58-88 Edward Elgar Publishing.
    4. Susan Chaplinsky & Swasti Gupta-Mukherjee, 2013. "The Decline in Venture-Backed IPOS: Implications for Capital Recovery," Chapters,in: Handbook of Research on IPOs, chapter 2, pages 35-56 Edward Elgar Publishing.
    5. Paul A. Gompers & Sophie Q. Wang, 2017. "Diversity in Innovation," NBER Working Papers 23082, National Bureau of Economic Research, Inc.
    6. Henrekson, Magnus & Sanandaji, Tino, 2017. "Schumpeterian Entrepreneurship in Europe Compared to Other Industrialized Regions," Working Paper Series 1170, Research Institute of Industrial Economics.
    7. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, Elsevier.
    8. Steven N. Kaplan & Josh Lerner, 2016. "Venture Capital Data: Opportunities and Challenges," NBER Chapters,in: Measuring Entrepreneurial Businesses: Current Knowledge and Challenges, pages 413-431 National Bureau of Economic Research, Inc.
    9. Steven N. Kaplan, 2017. "Are U.S. Companies Too Short-Term Oriented? Some Thoughts," NBER Working Papers 23464, National Bureau of Economic Research, Inc.
    10. Achleitner, Ann-Kristin & Engel, Nico & Reiner, Uwe, 2013. "The performance of venture capital investments: Do investors overreact?," Review of Financial Economics, Elsevier, vol. 22(1), pages 20-35.
    11. Wolfgang Bessler & Martin Seim, 2013. "Venture capital and IPO waves in Europe: an analysis of firm and performance characteristics," Chapters,in: Handbook of Research on IPOs, chapter 15, pages 295-326 Edward Elgar Publishing.
    12. Croce, Annalisa & Martí, José & Murtinu, Samuele, 2013. "The impact of venture capital on the productivity growth of European entrepreneurial firms: ‘Screening’ or ‘value added’ effect?," Journal of Business Venturing, Elsevier, vol. 28(4), pages 489-510.

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