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Start-up Financing, Entry and Innovation

Author

Listed:
  • Parry, C.

Abstract

I develop and estimate an equilibrium model of the VC market to quantify distortions and explain cross-country differences in VC activity. The model maps directly to observable start-up funding histories and outcomes, facilitating estimation. For US start-ups first funded in 2005–2015, my estimates suggest that 40% shut down despite having positive continuation value; with continued funding, half would achieve a successful exit. In the UK, the model attributes the gap in activity to the US to financing conditions and acquisition opportunities, and counterfactuals suggest there may be gains to retargeting existing government support towards late-stage start-ups.

Suggested Citation

  • Parry, C., 2026. "Start-up Financing, Entry and Innovation," Cambridge Working Papers in Economics 2682, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2682
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    Keywords

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    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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