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On the Return to Venture Capital

  • Boyan Jovanovic
  • Balàzs Szentes

We provide a model that links the high return to venture equity to the impatience of the VCs. VCs are scarce, and hence, they have market power and a high return on their investments. As a result, VCs are eager to terminate non-performing ventures so they can move on to new ones. The scarcity of VCs enables them to internalize their social value, and the competitive equilibrium is socially optimal. We estimate the model and back out the return of solo entrepreneurs which is always below that of the return of VCs.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12874.

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Date of creation: Jan 2007
Date of revision:
Handle: RePEc:nbr:nberwo:12874
Note: PR CF
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