In the last 25 years, the venture-capital industry has grown from a less than $1 billion to an over $60 billion business--growth that has far surpassed any other class of investment products. Today, the industry consists of several thousand professionals working at about 500 funds concentrated in California, Massachusetts, and a handful of other states. Despite the industry's size, there are many misconceptions about the nature and role of venture capitalists; their trade remains shrouded in mystery.
Paul Gompers and Josh Lerner's Venture Capital Cycle is an illuminating academic examination of the form and function of venture-capital funds. Gompers and Lerner are Harvard Business School professors who have researched extensive original data to analyze venture-capital fundraising, investing, and exiting methods. Beginning with a historical overview of entrepreneurial finance, the book examines how venture partnerships are structured, how venture capitalists are compensated, the staging of investments in operating companies, and the relative performance of venture-capital-backed offerings. There's also an interesting comparison of corporate venture organizations, such as Xerox PARC, with those of independent and other venture groups. Venture capitalists use industry knowledge and monitoring skills to finance projects with significant uncertainty, typically concentrating investments in early-stage companies and high-tech industries. Large information gaps between entrepreneurs and investors create conflicted interests, and the book looks at some of the novel checks and balances most often employed.
One of the book's themes is that the whole venture-capital process is best understood as a cycle: from the raising of a fund; to investing in, monitoring, and adding value to firms; then exiting deals; returning capital to investors; and finally renewing itself by raising additional funds. The need to exit an investment successfully shapes all aspects of the venture-capital cycle, from the ability to raise capital to the types of investments made. Another theme is that because venture funds must make long-term illiquid investments, they need to secure funds from their investors for periods of 10 years or more. The supply of venture capital consequently cannot adjust quickly to changes in the investment environment.
The authors conclude that increasing familiarity with the venture-capital process has made the long-term prospects for venture investment more attractive than ever. Entrepreneurs, venture capitalists, and investors will find this book a scholarly, well-documented examination of the industry. --Scott Harrison
--This text refers to an out of print or unavailable edition of this title.
A valuable set of perspectives on financial systems in transition economies from many of the leading scholars in finance.
(Andrei Shleifer, Professor of Economics, Harvard University)
Praise for the first edition "Insightful and well documented—excellent reading for veterans as well as anyone exploring this fascinating and challenging 'industry' for the first time.
(Peter O. Crisp, Founding and Former Managing Partner, Venrock Associates)
The Venture Capital Cycle provides an accurate, comprehensive, and insightful description of the economics and business of venture capital. This second edition is essential reading for entrepreneurs, venture capitalists, policymakers, and academics interested in the economics of venture capital and innovation.
(Steven N. Kaplan, Neubauer Family Professor of Entrepreneurship and Finance, University of Chicago Graduate School of Business)
Gompers and Lerner bring cutting-edge theory to bear on venture capital practice. The second edition of The Venture Capital Cycle belongs on the bookshelf of academics and practitioners alike.
(Ronald J. Gilson, Meyers Professor of Law and Business, Stanford Law School, and Stern Professor of Law and Business, Columbia Law School)