Venture Capital's Role in Financing Innovation for Economic Growth

Posted: 17 Nov 2009

See all articles by Jeffry Timmons

Jeffry Timmons

affiliation not provided to SSRN

William D. Bygrave

Babson College - Arthur M. Blank Center for Entrepreneurship

Date Written: 1986

Abstract

Provides an overview of the role of venture capital (VC) in the financing of small, highly innovative technology companies, and the contributions of the direct involvement of VC staff in firm development. Previous research focused on decision criteria, performance of firms, and availability and cost of venture capital. New research concludes innovation is a result of invention combined with technology transfer and entrepreneurship. Specialized VC investing knowledge can play a critical role in the process. The present study focused on VC investment and "highly innovative" technological ventures (HITV) and "least-innovative" technological ventures (LITVs), and flow of VC. The study was based on 1,501 first-round portfolio investments in 1967-82 recorded in the Venture Economics database. The 464 VC firms with investments in those companies were categorized as to investment in HITVs or LITVs. Field interviews were conducted to focus on the dynamics of innovative technology entrepreneurs working with venture capitalists to generated, finance, and develop future technology-based industries. Found that: VC investment activity increased in 1979; federal capital gains tax changes preceded changes in flow of funds into VC firms; the number of first-round investments in HITVs grew significantly in 1979-1982; a disproportionate share of the core of highly skilled and experienced VC firms invested in HITVs; VC investments are made in HITVs earlier than LITVs; the proportion of initial investments in seed-stage HITVs increased in 1981-82; early involvement of VC firms contributes added value to their HITVs; HITV investing is clustered in geographic areas; VC firms search out promising investment opportunities; and VC intense involvement produces an acceleration effect in bringing technology to market. Policy ideas and recommendations are offered, and some positive and negative trends and outlooks for the mid 1980s are identified. (TNM)

Keywords: Early stage capital, Firm performance, High technology firms, Firm financing, Venture capitalists, Startups, Venture capital

Suggested Citation

Timmons, Jeffry and Bygrave, William D., Venture Capital's Role in Financing Innovation for Economic Growth (1986). Journal of Business Venturing, Vol. 1, Issue 2, p. 161-176 1986. Available at SSRN: https://ssrn.com/abstract=1506339

Jeffry Timmons (Contact Author)

affiliation not provided to SSRN

William D. Bygrave

Babson College - Arthur M. Blank Center for Entrepreneurship ( email )

231 Forest Street
Babson Park, MA 02457-0310
United States

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