Venture Capital’s Role in Financing Innovation: What We Know and How Much We Still Need to Learn

32 Pages Posted: 26 Jun 2020

See all articles by Josh Lerner

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Ramana Nanda

Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Date Written: June 15, 2020

Abstract

Venture capital is associated with some of the most high-growth and influential firms in the world. Academics and practitioners have effectively articulated the strengths of the venture model. At the same time, venture capital financing also has real limitations in its ability to advance substantial technological change. Three issues are particularly concerning to us: 1) the very narrow band of technological innovations that fit the requirements of institutional venture capital investors; 2) the relatively small number of venture capital investors who hold, and shape the direction of, a substantial fraction of capital that is deployed into financing radical technological change; and 3) the relaxation in recent years of the intense emphasis on corporate governance by venture capital firms. While our ability to assess the social welfare impact of venture capital remains nascent, we hope that this article will stimulate discussion of and research into these questions.

Keywords: venture capital, financing, innovation

Suggested Citation

Lerner, Josh and Nanda, Ramana, Venture Capital’s Role in Financing Innovation: What We Know and How Much We Still Need to Learn (June 15, 2020). Harvard Business School Entrepreneurial Management Working Paper No. 20-131, Harvard Business School Finance Working Paper No. 20-131, Available at SSRN: https://ssrn.com/abstract=3633054 or http://dx.doi.org/10.2139/ssrn.3633054

Josh Lerner (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)

HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ramana Nanda

Harvard University - Entrepreneurial Management Unit ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.people.hbs.edu/rnanda

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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