Venture Capital and the Macroeconomy∗
نویسنده
چکیده
I develop a model of venture capital (VC) intermediation that can quantitatively explain central empirical facts about VC activity and allows evaluating its impact on economic growth. The framework reveals how pro-cyclical VC investment dynamics reinforce themselves through a risk premium channel that rationalizes low funding standards in booms. VC investments’ aggregate impact is significantly larger than suggested by empirical magnitudes of VC commitments and exit valuations, even after accounting for large exposures to systematic and uninsurable idiosyncratic risks. The model is analytically tractable and yields exact solutions despite the presence of matching frictions, imperfect risk sharing, and endogenous growth.
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