The Venture Capital Cycle

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MIT Press, 2004 - Business & Economics - 569 pages
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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.

  

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In-depth analysis of how the venture capital industry works. Dry and scholarly, yet insightful for anyone interested in this area.

Contents

An Overview of Venture Capital FundRaising
23
How Are Venture Partnerships Structured?
65
How Are Venture Capitalists Compensated?
91
Does the Venture Capital Structure Matter?
127
An Overview of Venture Capital Investing
157
Why Are Investments Staged?
171
Do Fund Inflows Impact Private Equity Valuations?
201
How Do Venture Capitalists Oversee Firms?
241
An Overview of Existing Venture Capital Investments
345
Do Market Conditions Affect the Decision to Go Public?
355
Does Reputation Affect the Decision to Go Public?
377
Do Investment BankAffiliated Venture Capitalists Exhibit Conflict
399
Why Do IPO Lockups Exist?
423
Why Do Venture Capitalists Distribute Shares?
459
How Well Do VentureBacked Offerings Perform?
483
The Future of the Venture Capital Cycle
515

Why Do Venture Capitalists Syndicate Investments?
255
Does Venture Capital Spur Innovation?
273
Can the Government Be an Effective Venture Capitalist?
309

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About the author (2004)

Associate Professor at the Harvard Business School and Faculty Research Fellows at the National Bureau of Economic Research.

Josh Lerner is Jacob H. Schiff Professor of Investment Banking at Harvard Business School, with a joint appointment in the Finance and Entrepreneurial Units. He is the author of "The Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed and What to Do About It.

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