The Venture Capital Cycle

In The Venture Capital Cycle Paul Gompers and Josh Lerner correct widespread misper-ceptions about the nature and role of venture capitalists 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. These cover such topics as what determines the level of venture capital fund-raising and how tax policy influences the demand for venture capital; what kind of distortions are introduced when the venture capital market goes dramatically up, a question prompted by the 1999-2000 market bubble; how the venture capital industry does indeed spur innovation, an important determinant of economic growth; whether and under what circumstances governments can be effective venture capitalists; 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.