Short-Term America Revisited? Boom and Bust in the Venture Capital Industry and the Impact on Innovation

Abstract

This chapter seeks to understand the implications of the recent decline in venture activity for innovation. It argues that the situation may not be as grim as it initially appears. While there are many reasons for believing that on average venture capital has a powerful effect on innovation, the effect is far from uniform. During boom periods, the prevalence of overfunding of particular sectors can lead to a sharp decline in the effectiveness of venture funds. While prolonged downturns may eventually lead to good companies going unfunded, many of the dire predictions today seem overstated.

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