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Venture Capital Booms and Startup Financing

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  • Janeway, W.
  • Nanda, R.
  • Rhodes-Kropf, M.

Abstract

We review the growing literature on the relationship between venture capital booms and startup financing, focusing on three broad areas: First, we discuss the drivers of large inflows into the venture capital asset class, particularly in recent years -- which are related to but also distinct from macroeconomic business cycles and stock market fluctuations. Second, we review the emerging literature on the real effects of venture capital financing booms. A particular focus of this work is to highlight the potential impact that booms (and busts) can have on the types of firms that VCs choose to fund and terms at which they are funded, independent of investment opportunities -- thereby shaping the trajectory of innovation being conducted by startups. Third, an important insight from recent research is that booms in venture capital financing are not just a temporal phenomenon but can also be seen in terms of the concentration of VC investment in certain industries and geographies. We also review the role of government policy, exploring the degree to which it can explain the concentration of VC funding in the US over the past forty years in just two broad areas – information and communication technologies (ICT) and biotechnology. We conclude by highlighting promising areas of further research.

Suggested Citation

  • Janeway, W. & Nanda, R. & Rhodes-Kropf, M., 2021. "Venture Capital Booms and Startup Financing," Cambridge Working Papers in Economics 2147, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:2147
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    1. Silvia Dalla Fontana & Ramana Nanda, 2023. "Innovating to Net Zero: Can Venture Capital and Start-Ups Play a Meaningful Role?," Entrepreneurship and Innovation Policy and the Economy, University of Chicago Press, vol. 2(1), pages 79-105.

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    More about this item

    Keywords

    Venture capital; start-ups; innovation;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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