Financing Ventures: Some Macroeconomics

66 Pages Posted: 28 Nov 2017 Last revised: 11 Jun 2019

See all articles by Juan M. Sánchez

Juan M. Sánchez

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Pengfei Han

University of Pennsylvania - Department of Economics

Jeremy Greenwood

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: 2017-08-01

Abstract

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

Suggested Citation

Sanchez, Juan M. and Han, Pengfei and Greenwood, Jeremy, Financing Ventures: Some Macroeconomics (2017-08-01). FRB St. Louis Working Paper No. 2017-35. Available at SSRN: https://ssrn.com/abstract=3078555 or http://dx.doi.org/10.20955/wp.2017.035

Juan M. Sanchez (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Pengfei Han

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

Jeremy Greenwood

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-1505 (Phone)

HOME PAGE: http://jeremygreenwood.net

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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