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Financing Ventures

Author

Listed:
  • Jeremy Greenwood
  • Pengfei Han
  • Juan M. Sanchez

Abstract

The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of financing, venture capitalists evaluate the viability of startups. If viable, venture capitalists provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital: statistics by funding round concerning success rates, failure rates, investment rates, equity shares, and IPO values. The increased efficiency offered by venture capital for financing inventive startups is important for long-run growth and welfare.

Suggested Citation

  • Jeremy Greenwood & Pengfei Han & Juan M. Sanchez, 2017. "Financing Ventures," Working Papers 2017-035, Federal Reserve Bank of St. Louis, revised Nov 2021.
    • Handle: RePEc:fip:fedlwp:2017-035
    DOI: 10.20955/wp.2017.035
    Note: Publisher DOI: https://doi.org/10.1111/iere.12561
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    Other versions of this item:

    • Jeremy Greenwood & Pengfei Han & Juan M. Sánchez, 2022. "Financing Ventures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1021-1053, August.

    References listed on IDEAS

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    Cited by:

    1. Murat Celik & Xu Tian, 2018. "Corporate Governance, Managerial Compensation, and Disruptive Innovations," 2018 Meeting Papers 590, Society for Economic Dynamics.
    2. Juan M. Sanchez, 2019. "Tax Cuts, Venture Capital, and Long-Term Growth," Economic Synopses, Federal Reserve Bank of St. Louis, issue 22, August.

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    More about this item

    Keywords

    capital gains taxation; dynamic contracts; endogenous growth; evaluating; financial development; funding rounds; IPO; monitoring; startups; research and development; venture capital;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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