Temporal Comparative Analysis of the Us Venture Capital Industry Over 1980 to 2002

Abstract

We hypothesize that supply and demand shifts occurred in the US venture capital (VC) industry during 1980 to 2002 and present the results of an empirical study about the temporal characteristics of the industry during that period. Our main conclusion is that the VC industry has gone under fundamental transformation in the early 1990s when pension funds started to significantly invest in the sector. As a result, since the early 1990s, the US VC industry has transformed into a supply-driven market. We estimate that even after the bubble burst, the VC industry is still inflated and predict degraded future returns. Moreover, we project that if pension funds, such as CALPERS and the like, and other institutional investors will further increase their allocation for venture capital investments it will turn out counterproductive and further degrade the performance of the VC industry in view of the limited pool of fundable deals.

Keywords: Venture Capital, Supply and Demand, Temporal, Comparative Analysis

JEL Classification: G23, G24, G28, G31, G32, M13,O16, O32