The Venture Capital Cycle

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 1999-10-01
  • Publisher: MIT PRESS
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The venture capital industry in the United States has grown dramatically over the last two decades. Annual inflows to venture funds have expanded from virtually zero in the mid-1970s to more than $9 billion in 1997. Many of the most visible new firms-including Apple Computer, Genentech, Intel, Lotus, Microsoft, and Yahoo-have been backed by venture capital funds. Yet despite this tremendous growth and its visible success, venture capital remains a mysterious industry. Numerous misconceptions persist about the nature and role of venture capitalists. Paul Gompers and Josh Lerner's extensive research on venture capital organizations is based largely on original data sets developed through close relationships with institutional investors in venture capital funds and investment advisors. The Venture Capital Cyclesynthesizes their path-breaking work. After a historical overview, the book looks at the formation of funds, the investment of the funds in operating companies, and the liquidation of these investments. The concluding chapter provides a road map for future research in this growing area. Three themes run throughout the book. The first is that all venture capitalists confront tremendous incentive and information problems. The second is that because the various stages of the venture capital processes are related, the entire process is best viewed as a cycle. The third is that, unlike most financial markets, the venture capital industry adjusts very slowly to shifts in the supply of capital and the demand for financing.

Author Biography

Paul Gompers and Josh Lerner are, respectively, the Roy and Elizabeth Simmons Professor of Business Administration and the Jacob H. Schiff Professor of Investment Banking at the Harvard Business School. Both are affiliated with the National Bureau of Economic Research

Table of Contents

Acknowledgments vii
1 Introduction
I Venture Capital Fundraising 17(108)
2 An Overview of Venture Capital Fundraising
3 How Are Venture Partnerships Structured?
4 How Are Venture Capitalists Compensated?
5 Does the Venture Capital Structure Matter?
II Venture Capital Investing 125(78)
6 An Overview of Venture Capital Investing
7 Why Are Investments Staged?
8 How Do Venture Capitalists Oversee Firms?
9 Why Do Venture Capitalists Syndicate Investments?
III Exiting Venture Capital Investments 203(140)
10 An Overview of Exiting Venture Capital Investments
11 Do Market Conditions Affect the Decision to Go Public?
12 Does Reputation Affect the Decision to Go Public?
13 Why Do Venture Capitalists Distribute Shares?
14 How Well Do Venture-Backed Offerings Perform?
15 The Future of the Venture Capital Cycle
16 A Note on Data Sources
Venture Capital Glossary 343(8)
References 351(14)
Name Index 365(4)
Subject Index 369

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