NATIONAL BUREAU OF ECONOMIC RESEARCH
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Financing Ventures

Jeremy Greenwood, Pengfei Han, Juan M. Sanchez

NBER Working Paper No. 24808
Issued in July 2018, Revised in March 2019
NBER Program(s):Economic Fluctuations and Growth Program

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.

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Document Object Identifier (DOI): 10.3386/w24808

 
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