Kiel Working Papers, Kiel Institute for World Economics
No 1120:
Path Dependencies in Venture Capital Markets
Andrea Schertler
Abstract: This paper examines the impact of venture capitalistsÂ’
reputation building and experience accumulation on the genesis of venture
capital markets. Venture capitalists must accumulate experience to
successfully support high-technology enterprises. They must build
reputation, i.e., a track record for successfully financing high-technology
enterprises, in order to raise new funds from outside investors that have
little information about the profitability of venture capital investments.
Simulations are used to solve the model. The simulation results demonstrate
that reputation building and experience accumulation lead to path
dependencies: if venture capitalists lack experience, successive waves of
unsuccessful venture-capital-backed enterprises undermine the genesis of
venture capital markets.
Keywords: Reputation building, experience accumulation, dynamic efficiency, path dependencies, venture capital; (follow links to similar papers)
JEL-Codes: G24; O16; O41; (follow links to similar papers)
37 pages, July 2002
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