Determinants of the venture capital

Goran  Dostić

Authors

Goran Dostić University of Amsterdam

Keywords:

Venture capital, private equity, stock markets, liquidity, law and finance, bankruptcy, government policy, taxes, moral hazard, agency problem

Abstract

In this paper I will briefly discuss and explain my theory and logic behind the determinants of VC financing that I consider most relevant. It is important to understand how they relate to the provision of venture financing and it is directly related to the analysis of the policy attempts to model a venture capital industry in different environments, which is a focus of the next section of this text.

Generally, the identified sets of determinants lie in three broad categories. These include: the existence of the avenue of exit for the venture capitalists - usually thought of as the presence of a large and liquid stock market; favorable legal, fiscal and regulatory framework supportive of the private business initiative; and the presence of a strong human capital base.

References

Armour, J., Law, innovation and finance: a review, Research Document, Centre for Business Research, Cambridge University, 2002.

Armour, J.; Cumming, D., Legal road to replicating Silicon Valley, Working Paper no. 281, Centre for Business Research, Cambridge University, 2004.

Baygan, D.; Freudenberg, M. The internationalization of venture capital activity in OECD Countries: implications for measurement and policy, Research Document DSTI/DOC (2000)7, OECD, 2000.

B.S., Black; R. J., Gilson Venture capital and the structure of capital markets: banks versus stock markets, Journal of Financial Economics, vol. 47, 1998.

Bottazzi, L.; Da Rin, M. Venture capital in Europe and the financing of innovative Companies, Economic Policy, vol. 17, 2002.

Bottazzi L.; Da Rin, M.; Hellmann, T. Specializing Financial Intermediation: Evidence from Venture Capital, RICAFE, Working Paper, 2004.

Cumming, D.J.; Fleming, G. A law and finance analysis of venture capital exits in emerging markets, Research Document in finance no. 02-03, The Australian National University, Australia, 2002.

Da Rin, M.; Nicodano, G.; Sembenelli, A. Public Policy and the Creation of Active Venture Capital markets, RICAFE Working Paper, 2004.

Gompers, P.A.; Lerner J. The Venture Capital Cycle, MИТ Press, Cambridge, Massachusetts, 1999.

Gilson, R.J. Engineering a venture capital market: lessons from the American experience, Stanford Law Review 55, 2003.

L.A., Jeng; Wells, P.C. The determinants of venture capital fundraising: evidence across countries, Journal of Corporate Finance, vol. 6, No. 3., NBER, 2000.

R., La Porta; Lopez-De-Silanes, F.; Shleifer, A.; Vishny, R.W. Legal determinants of external finance, The Journal of Finance, vol. 52, No. 3, 1997.

Michelacci, C.; Suarez , J. Business Creation and Stock Market, Review of Economic Studies, 71 No. 2, 2004.

Milhaupt, C.J. The market for innovation in the United States and Japan: venture capital and comparative corporate governance debate, Northwestern University Law Review, Vol. 91. No. 3., 1997.

Schwienbacher, A. An empirical analysis of venture capital exits in Europe and in the United States, Research Document, University of Namur, 2002.

Vermeulen, E.P.M. Towards a new „company” structure for high-tech start-ups in Europe, Research Document, 2001.