Venture Capital and Economic Development

What is it about?

Much the same as banks, venture capitalists ameliorate entrepreneurs' financing constraints. As is the case with banks, the question remains as to whether access to capital is all banks or venture capitalists are good for - a conclusion that renders the form or structure of financing irrelevant. If banks or venture capitalists are only good for financing, all we need in society are capital providers and neither of the banking nor venture capital market structures or organizational forms are necessary. In essence, the question remains as to the benefits of specific market structures or organizational forms of capital providers within financial systems.

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Why is it important?

This study demonstrates the structure of activities within venture capital markets contributes to price discovery or information revelation within stock markets; that is, helps stock markets arrive at the "fair values" of companies with similar products, but significant differences in risk profiles. This finding demonstrates, as is the case in Gompers (1995), that venture capital is not just a means by which entrepreneurs access capital. On the contrary, this study demonstrates the market structure and organizational forms within venture capital markets generate significant spillover values both within venture capital markets and stock markets.

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