Does Venture Capital Spur Innovation?
Samuel S. Kortum
University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)
Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)
NBER Working Paper No. w6846
While policymakers often assume venture capital has a profound impact on innovation, that premise has not been evaluated systematically. We address this omission by examining the influence of venture capital on patented inventions in the United States across twenty industries over three decades. We address concerns about causality in several ways, including exploiting a 1979 policy shift that spurred venture capital fundraising. We find that the amount of venture capital activity in an industry significantly increases its rate of patenting. While the ratio of venture capital to R&D has averaged less than 3% in recent years, our estimates suggest that venture capital accounts for about 15% of industrial innovations. We address concerns that these results are an artifact of our use of patent counts by demonstrating similar patterns when other measures of innovation are used in a sample of 530 venture-backed and non-venture-backed firms.
Number of Pages in PDF File: 69working papers series
Date posted: July 5, 2000
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