The Venture Capital Cycle

by Gompers, Paul A.; Lerner, Josh

• ISBN13: 9780262072557
• ISBN10: 0262072556
• Edition: 2nd
• Format: Hardcover
• Copyright: 2004-12-01
• Publisher: Mit Pr

Summary

In The Venture Capital Cycle, Paul Gompers and Josh Lerner correct widespread misperceptions about the nature and role of the venture capitalist and provide an accessible and comprehensive overview of the venture capital industry. Bringing together fifteen years of ground-breaking research into the form and function of venture capital firms, they examine the fund-raising, investing, and exit stages of venture capitalists. Three major themes run throughout the process: venture investors confront tremendous information and incentive problems; venture capital processes are inherently interrelated, and a complete understanding of the industry requires a full understanding of the venture cycle; and, unlike most financial markets, the venture capital industry adjusts very slowly to shifts in the demand for and the supply of investment capital. This second edition has been thoroughly revised in light of recent research findings, and includes six new chapters. The first part, on fund-raising, now includes a chapter that examines what determines the level of venture capital fund-raising and how tax policy influences the demand for venture capital. Three new chapters in the second part, on investing, examine what kind of distortions are introduced when the venture capital market goes dramatically up, a question prompted by the 1999-2000 market bubble; demonstrate that the venture capital industry does indeed spur innovation, an important determinant of economic growth; and examine whether and under what circumstances governments can be effective venture capitalists. Two new chapters in the third part, on exiting venture capital investments, discuss whether venture capital firms affiliated with investment-banks are prone to conflicts of interest with public offerings and how lockups on initial public offerings are used to limit conflicts of interest.

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
Introduction	1	(22)
I Venture Capital Fund-Raising
An Overview of Venture Capital Fund-Raising	23	(10)
What Drives Venture Capital Fund-Raising?	33	(32)
How Are Venture Partnerships Structured?	65	(26)
How Are Venture Capitalists Compensated?	91	(36)
Does the Venture Capital Structure Matter?	127	(30)
II Venture Capital Investing
An Overview of Venture Capital Investing	157	(14)
Why Are Investments Staged?	171	(30)
Do Fund Inflows Impact Private Equity Valuations?	201	(40)
How Do Venture Capitalists Oversee Firms?	241	(14)
Why Do Venture Capitalists Syndicate Investments?	255	(18)
Does Venture Capital Spur Innovation?	273	(36)
Can the Government Be an Effective Venture Capitalist?	309	(36)
III Exiting Venture Capital Investments
An Overview of Exiting Venture Capital Investments	345	(10)
Do Market Conditions Affect the Decision to Go Public?	355	(22)
Does Reputation Affect the Decision to Go Public?	377	(22)
Do Investment Bank-Affiliated Venture Capitalists Exhibit Conflict of Interest?	399	(24)
Why Do IPO Lockups Exist?	423	(36)
Why Do Venture Capitalists Distribute Shares?	459	(24)
How Well Do Venture-Backed Offerings Perform?	483	(32)
The Future of the Venture Capital Cycle	515	(4)
A Note on Data Sources	519	(14)
References	533	(22)
Index	555