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Assessing the Contribution of Venture Capital to Innovation

Authors:
Samuel Kortum at Yale University
Samuel Kortum
Josh Lerner at Harvard University
Josh Lerner
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Abstract

We examine the influence of venture capital on patented inventions in the United States across twenty industries over three decades. We address concerns about causality in several ways, including exploiting a 1979 policy shift that spurred venture capital fundraising. We find that increases in venture capital activity in an industry are associated with significantly higher patenting rates. While the ratio of venture capital to R&D averaged less than 3% from 1983-1992, our estimates suggest that venture capital may have accounted for 8% of industrial innovations in that period.
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Assessing the Contribution of Venture Capital to Innovation
Samuel Kortum; Josh Lerner
The RAND Journal of Economics, Vol. 31, No. 4. (Winter, 2000), pp. 674-692.
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Thu Feb 1 06:26:20 2007
... venture capital (vc) financing offers a fascinating alternative for start-up firms that lack the historical financial statements or tangible assets required by traditional financial institutions (cummings & Macintosh, 2003;hamman et al., 2021;lerner, 2010;Megersa, 2020;savca, 2021;World Bank, 2019). access to sustained financing is crucial for startup firms to fuel their innovation, productivity, growth and development, and the commercialization of the entrepreneurship sector at large (ahlstrom & Bruton, 2006;Brusche, 2016;Kortum & lerner, 2001;ramalho, 2010). in addition, sustained financing provides the necessary resources for high-growth firms (hGFs) to invest in research and development (r&D), hire skilled employees, enter new markets, and navigate uncertainties. Moreover, it enables hGFs to seize growth opportunities, stay competitive, and create economic value, thereby contributing to overall economic development. ...
... this finding highlights the importance of finding a balance in government interventions to ensure the positive impact of vc funding. Furthermore, the lack of a developed exit market, such as initial public offerings or acquisitions, can limit potential returns for vc investors and create challenges for hGFs seeking liquidity events (humphrey-Jenner & suchard, 2013;Jiang et al., 2014;Kortum & lerner, 2001). however, the vc market in south and East africa is still young and constrained, and it has not played its role fully when compared to mature markets in developed countries (ahlstrom & Bruton, 2006;Ernst & Young, 2016). ...
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