Venture Capital and Knowledge Transfer
58 Pages Posted: 13 Dec 2015
Date Written: June 28, 2015
This paper explores a new role for venture capitalists, as knowledge intermediaries. A venture capital investor can communicate valuable knowledge to an entrepreneur, facilitating innovation. The venture capitalist can also communicate the entrepreneur's innovative knowledge to other portfolio companies. We study the costs and benefits of these two forms of knowledge transfer, and their implications for investment, innovation, and profitability. The model sheds light on the choice between venture capital and other forms of finance, and the implications of this choice for observed differences between VC-funded and non-VC-funded firms. Our analysis also provides a rationale for the use of certain contingencies (specifically, patent approval) in VC contracts documented by Kaplan and Stromberg (2003), and for recent evidence on patterns of syndication among venture capitalists.
Keywords: Venture capital, knowledge intermediaries, contracts, innovation, competition, patents
JEL Classification: D82, D86, G24, L22
Suggested Citation: Suggested Citation