This paper seeks to understand the implications of the recent collapse in venture activity on innovation. It argues that the situation may not be as grim as it initially appears. While there are many reasons for believing that on average venture capital has a powerful impact on innovation, the impact is far from uniform. In particular, during boom periods, the prevalence of over-funding of particular sectors can lead to a sharp decline in terms of the effectiveness of venture funds. While prolonged downturns may eventually lead to good companies going unfunded, many of the dire predictions seem overstated.
Editor’s Note: read an interview with the author regarding this paper at
Josh Lerner
Sources: Harvard Business School (HBS) Working Knowledge, Social Science Research Network (SSRN)
Subjects: Innovation, Venture Capital
