Promoting Innovative Growth: Venture Capital, Growth Equity and IPOs

Young companies have been shown to be a crucial driver of employment growth and innovation in the American economy. Yet in recent years, these critical firms have struggled to raise capital. Venture capital funding—the major funder of technologically innovative firms—has never recovered from its peak in 1999-2000. Many smaller growth equity funds have struggled to raise capital as large institutions concentrate their funding into fewer funds, seeking to limit the number of relationships they must manage. Meanwhile, the path from private to public ownership has become more daunting. In response to these circumstances, Congress—in a rare display of bipartisanship—enacted the JOBS Act, which relaxes the barriers that small firms face when going public and facilitates the raising of capital through “crowdfunding.” But it remains to be seen the extent to which these policies will ease the financing challenges facing high-potential firms.

On December 3, Economic Studies at Brookings and the Private Capital Research Institute examined the challenges that the financing system faces, recent changes, and the likely future of entrepreneurial finance.