Venture Capital Booms and Startup Financing

22 Pages Posted: 23 Apr 2021

See all articles by William H. Janeway

William H. Janeway

University of Cambridge

Ramana Nanda

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

Matthew Rhodes-Kropf

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

Date Written: April 1, 2021

Abstract

We review the growing literature on the relationship between venture capital booms and startup financing, focusing on three broad areas: First, we discuss the drivers of large inflows into the venture capital asset class, particularly in recent years -- which are related to but also distinct from macroeconomic business cycles and stock market fluctuations. Second, we review the emerging literature on the real effects of venture capital financing booms. A particular focus of this work is to highlight the potential impact that booms (and busts) can have on the types of firms that VCs choose to fund and terms at which they are funded, independent of investment opportunities -- thereby shaping the trajectory of innovation being conducted by startups. Third, an important insight from recent research is that booms in venture capital financing are not just a temporal phenomenon but can also be seen in terms of the concentration of VC investment in certain industries and geographies. We also review the role of government policy, exploring the degree to which it can explain the concentration of VC funding in the US over the past forty years in just two broad areas – information and communication technologies (ICT) and biotechnology. We conclude by highlighting promising areas of further research.

Suggested Citation

Janeway, William H. and Nanda, Ramana and Rhodes-Kropf, Matthew, Venture Capital Booms and Startup Financing (April 1, 2021). Harvard Business School Entrepreneurial Management Working Paper No. 21-116, Available at SSRN: https://ssrn.com/abstract=3832337 or http://dx.doi.org/10.2139/ssrn.3832337

William H. Janeway

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

Ramana Nanda (Contact Author)

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 )

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Cambridge, MA 02138
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Matthew Rhodes-Kropf

Harvard Business School - Entrepreneurial Management Unit ( email )

Soldiers Field Road
Rock Center 312
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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