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http://ssrn.com/abstract=1373723
 
 

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What is the Effect of the Financial Crisis on Venture Capital Financing? Empirical Evidence from US Internet Start-Ups


Jorn H. Block


University of Trier - Faculty of Management; Erasmus University Rotterdam (EUR) - Institute of Management (ERIM)

Philipp G. Sandner


Technische Universität München, TUM School of Management

April 6, 2009

Venture Capital - An International Journal of Entrepreneurial Finance, Vol. 11, No. 4, pp. 295-309, 2009

Abstract:     
Employing a large dataset of venture capital investments in US Internet firms, we analyze the effect of the current financial crisis on the venture capital market. Using regression analysis, we find that the financial crisis is associated with a 20% decrease in the average amount of funds raised per funding round. This effect, however, can only be found in later funding rounds. We argue that firms in later financing rounds that need capital to survive cannot avoid a deduction induced by the financial crisis, whereas firms that seek initial funding postpone their funding and expansion plans until the capital markets have stabilized. Fur-thermore, firms in later phases of the venture cycle are more likely to be negatively affected by the weak IPO market than firms seeking initial funding. Our results suggest that the finan-cial crisis can lead to a severe ‘funding gap’ in the financing of technological development and innovation.

Number of Pages in PDF File: 21

Keywords: Entrepreneurship, Financial Crisis, Venture Capital, Innovation Finance, Entrepreneurial Finance, CrunchBase

JEL Classification: L26, G24, O30

working papers series


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Date posted: April 6, 2009 ; Last revised: April 13, 2010

Suggested Citation

Block, Jorn H. and Sandner, Philipp G., What is the Effect of the Financial Crisis on Venture Capital Financing? Empirical Evidence from US Internet Start-Ups (April 6, 2009). Venture Capital - An International Journal of Entrepreneurial Finance, Vol. 11, No. 4, pp. 295-309, 2009. Available at SSRN: http://ssrn.com/abstract=1373723 or http://dx.doi.org/10.2139/ssrn.1373723

Contact Information

Jorn Hendrich Block (Contact Author)
University of Trier - Faculty of Management ( email )
D-54296
Germany
Erasmus University Rotterdam (EUR) - Institute of Management (ERIM) ( email )
Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands
Philipp Sandner
Technische Universität München, TUM School of Management ( email )
Arcisstrasse 21
Munich, 80333
Germany
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