Synergizing Ventures
September 09, 2019
Summary
The authors show empirically that venture capitalists (VCs) disproportionately back promising young startups and nurture them into superstar firms. A macroeconomic model highlights these synergies between VCs and startups in explaining the significant impact of VC on aggregate growth.
View PaperVenture capital (VC) and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and initial patent quality than non-VC-backed ones. VC backing increases a startup's likelihood of reaching the right tails of the firm size and innovation distributions. Furthermore, outcomes are better for startups matched with more experienced venture capitalists. An endogenous growth model, where venture capitalists provide both expertise and financing for business startups, is constructed to match these facts. The presence of venture capital, the degree of assortative matching between startups and financiers, and the taxation of VC-backed startups matter significantly for growth.
JEL classification: E13, E22, G24, L26, O16, O31, O40
Key words: venture capital, assortative matching, endogenous growth, IPO, management, mergers and acquisitions, research and development, startups, synergies, taxation, patents
Digital Object Identifier: https://doi.org/10.29338/wp2019-17
The Census Bureau's Disclosure Review Board (DRB) and Disclosure Avoidance Officers have reviewed this data product for unauthorized disclosure of confidential information and have approved the disclosure avoidance practices applied to this release (DRB approval numbers DRB-B0058-CED-20190605, DRB-B0116-CDAR-20180816, DRB-B0102-CDAR-20180711, CBDRB-2018-CDAR-067, and CBDRB-2018-CDAR-063). The views expressed here are those of the authors and not necessarily those of the U.S. Census Bureau, the Federal Reserve Bank of Atlanta, the Federal Reserve System, or the Board of Governors and its staff. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Ufuk Akcigit, Department of Economics, University of Chicago, 1126 E 59th Street, Chicago, IL, 60637, uakcigit@uchicago.edu; Emin Dinlersoz, Center for Economic Studies, U.S. Census Bureau, 4600 Silver Hill Road, Suitland, MD 20746, emin.m.dinlersoz@census.gov; Jeremy Greenwood, University of Pennsylvania, Department of Economics, The Ronald O. Perelman Center for Political Science and Economics, 133 South 36th Street, Suite 150, Philadelphia, PA 19104; or Veronika Penciakova, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, veronika.penciakova@atl.frb.org.
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