On the Return to Venture Capital

58 Pages Posted: 31 Jan 2007 Last revised: 7 Mar 2021

See all articles by Boyan Jovanovic

Boyan Jovanovic

New York University - Department of Economics

Balázs Szentes

University of Chicago - Department of Economics

Date Written: January 2007

Abstract

We provide a model that links the high return to venture equity to the impatience of the VCs. VCs are scarce, and hence, they have market power and a high return on their investments. As a result, VCs are eager to terminate non-performing ventures so they can move on to new ones. The scarcity of VCs enables them to internalize their social value, and the competitive equilibrium is socially optimal. We estimate the model and back out the return of solo entrepreneurs which is always below that of the return of VCs.

Suggested Citation

Jovanovic, Boyan and Szentes, Balázs, On the Return to Venture Capital (January 2007). NBER Working Paper No. w12874, Available at SSRN: https://ssrn.com/abstract=960449

Boyan Jovanovic (Contact Author)

New York University - Department of Economics ( email )

19 w 4 st.
New York, NY 10012
United States

Balázs Szentes

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
(773) 702-9127 (Phone)

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