In The Venture Capital Cycle, Paul Gompers and Josh Lerner correct widespread misperceptions about the nature and role of the venture capitalist 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. The first part, on fund-raising, now includes a chapter that examines what determines the level of venture capital fund-raising and how tax policy influences the demand for venture capital. Three new chapters in the second part, on investing, examine what kind of distortions are introduced when the venture capital market goes dramatically up, a question prompted by the 1999-2000 market bubble; demonstrate that the venture capital industry does indeed spur innovation, an important determinant of economic growth; and examine whether and under what circumstances governments can be effective venture capitalists. Two new chapters in the third part, on exiting venture capital investments, discuss 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.
About the Authors
Paul Gompers is the Roy and Elizabeth Simmons Professor of Business Administration and is affiliated with the National Bureau of Economic Research.
Josh Lerner is Jacob H. Schiff Professor of Investment Banking at Harvard Business School, with a joint appointment in the Finance and Entrepreneurial Units. He is the author of The Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed and What to Do About It.
"The venture capital industry has fueled the growth of the American stock market over the last decade. In this new edition, Gompers and Lerner ably chronicle the growth of this industry, but also provide a thorough and dispassionate analysis of its structure and conduct. For a serious student of venture capital, this is the book to read."
—Andrei Shleifer, Professor of Economics, Harvard University
"The Venture Capital Cycle provides an accurate, comprehensive, and insightful description of the economics and business of venture capital. This second edition is essential reading for entrepreneurs, venture capitalists, policy makers, and academics interested in the economics of venture capital and innovation."
—Steven N. Kaplan, Neubauer Family Professor of Entrepreneurship and Finance, University of Chicago Graduate School of Business
"Gompers and Lerner bring cutting-edge theory to bear on venture capital practice. The second edition of The Venture Capital Cycle belongs on the bookshelf of academics and practitioners alike."
—Ronald J. Gilson, Meyers Professor of Law and Business, Stanford Law School, and Stern Professor of Law and Business, Columbia Law School
"Gompers and Lerner cover the breadth of the venture capital world in an intellectually rigorous yet readily accessible manner. The Venture Capital Cycle will benefit every serious student of entrepreneurial finance."
—David F. Swensen, Chief Investment Officer, Yale University
Praise for the first edition:
"Insightful and well documented—excellent reading for veterans as well as anyone exploring this fascinating and challenging 'industry' for the first time."
—Peter O. Crisp, Founding and Former Managing Partner, Venrock Associates