How Much Does Venture Capital Drive the U.S. Economy?

Two scholars measure the economic impact of VC-funded companies.

Over the past 30 years, venture capital has become a dominant force in the financing of innovative American companies. From Google to Intel to FedEx, companies supported by venture capital have profoundly changed the U.S. economy. Despite the young age of the venture capital industry, a fifth of current public U.S. companies received venture capital financing.

Venture capital (VC) is a high-touch form of financing that is used primarily by young, innovative, and highly risky companies. Venture capitalists provide not only financing but also mentorship, strategic guidance, network access, and other support. These investments are highly speculative — most of the companies that receive VC funding will fail, even as some become runaway successes. Three out of the five largest companies in the world received most of their early external financing from VC. 

Sourced through Scoop.it from: www.gsb.stanford.edu

Venture capital (VC) is a high-touch form of financing that is used primarily by young, innovative, and highly risky companies. Venture capitalists provide not only financing but also mentorship, strategic guidance, network access, and other support. These investments are highly speculative — most of the companies that receive VC funding will fail, even as some become runaway successes. 3 out of the 5 largest companies in the world received most of their early external financing from VC.  Clearly, Apple, Google, and Microsoft are among the most innovative and most important companies in a generation. But how important are these and other VC-backed companies to the U.S. economy? How do they compare to industrial behemoths such as General Motors or massive financial institutions such as Bank of America in terms of job creation and overall economic impact? The researchers set out to quantify the long-term impact of VC on the U.S. economy. Started by classifying companies as either VC-backed or non–VC-backed, considering only public companies that are traded on major U.S. stock exchanges. While most successful VC investments end with the company being acquired, reliable information is currently available only on those companies that become publicly listed. Thus, our results likely underestimate the impact of VC on the economy.

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