How Much Does Venture Capital Drive the U.S. Economy? by Ilya A. Strebulaev and Will Gornall

TL;DR - VC is important to the US economy by providing a significant amount of jobs, R&D spending, and contributing to a high market cap in modern companies.

Helpfulness -4

Topic Tags - Visuals, statistics, VC jobs, VC history, Prudent Man, VC trends

Questions answered:

  • How does VC impact the US economy?
  • How do VCs invest?
  • What is early VC history?

Summary:

  • VC provides much more than money (connections, expertise, operations management)
  • 20% of all public companies have received VC funding, Employs 4 mil + people.
  • it is hard to quantify the effect of VC.
  • Prudent Man Rule passed in 1979 allowed pension funds to invest in VC firms, boosted the total funds VC firms raised by over ten times. ($0.1B → $4.5B)
  • When comparing companies created after 1979, VC contributes to 43% of all firms, along with “57% of the market capitalization and 38% of the employees of all such “new” public companies.”
  • They also spend 82% of all money spent on R&D by companies formed after 1979.
  • “VC funds invest in only 0.19% of new U.S. businesses.”
  • A high portion of companies that IPO each year are VC backed.
  • VCs invest in high growth companies that can return a high multitude for the inevitable high amount of failed investments.
  • Entrepreneurs choose VC finance at a higher and higher rate, proving that VC is a desired part of the startup community.

Follow-up Links

  • Visual https://www.gsb.stanford.edu/sites/gsb/files/resources/vcimpact.complex_graphic_1.jp