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13. Venture Capital Financing of Entrepreneurship: Theory, Empirical Evidence and a Research Agenda

Raphael Amit, James Brander and Christoph Zott

Subject Business and Management » Entrepreneurship

DOI: 10.1111/b.9780631215738.1999.00017.x


Entrepreneurial activity in North America has steadily increased in the past few decades. For example, the rate of new business registrations in Canada approximately doubled between 1979 and 1989 alone. The entrepreneurial sector is particularly interesting because of its close relationship to innovation and technological progress and the perception that it is the “engine of growth” of the economy in the sense that the entrepreneurial sector is a disproportionate supplier of employment growth. It follows from this perception that modern economies would thrive on a healthy and vibrant entrepreneurial business sector. Despite the observed growth in business initiation, however, only one new firm in five in Canada survives for ten years or more. And of the 80 percent of new ventures that cease operations within a decade, half of those fail within the first two years. Gaps or failures in financing the entrepreneurial sector may account for the observed high failure rates of new businesses. An important source of financing for the entrepreneurial sector is the venture capital industry. Indeed, venture capital activity is usually defined as the provision of equity and debt financing to young, privately held firms. However, relatively little is known about the performance of the venture capital industry (although Lerner 1994a , 1994b and Gompers 1995 provide sound empirical studies ... log in or subscribe to read full text

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