Financing Ventures: Some Macroeconomics
66 Pages Posted: 28 Nov 2017 Last revised: 11 Jun 2019
Date Written: 2017-08-01
The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of financing, venture capitalists evaluate the viability of startups. If viable, venture capitalists provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital; viz., statistics by funding round concerning the success rates, failure rates, investment rates, equity shares, and IPO values. Raising capital gains taxation reduces growth and welfare.
Keywords: capital gains taxation, dynamic contract, endogenous growth, evaluating, funding rounds, growth regressions, IPO, monitoring, startups, research and development, venture capital
JEL Classification: E13, E22, G24, L26, O16, O31, O40
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