BPEA | 1998: Microeconomics

What Drives Venture Capital Fundraising?

Josh Lerner and
Josh Lerner Harvard University and National Bureau of Economic Research
Paul A. Gompers
Paul A. Gompers Harvard University and National Bureau of Economic Research

Microeconomics 1998

DURING THE PAST twenty years, commitments to the U.S. venture capital
industry have grown dramatically. This growth has not been uniform:
it has occurred in concentrated areas of the country, and peaks in
fundraising have been followed by major retrenchments. Despite the
importance of the venture capital sector in generating innovation and
new jobs, few academic studies have explored the dramatic movements
in venture fundraising. In this paper we examine the forces that affected fundraising by
independent venture capital organizations from 1972 through 1994. We
study both industry fundraising patterns and the success of individual
venture organizations. We find that regulatory changes affecting pension
funds, capital gains tax rates, overall economic growth, and research
and development expenditures, as well as firm-specific performance
and reputation, affect fundraising. The results are potentially
important for understanding and promoting venture capital investment.