Center for Contract and Economic Organization
Center for Law and Economic Studies
The venture capital market and firms whose creation and early stages were financed by venture capital are among the crown jewels of the American economy. Beyond representing an important engine of macroeconomic growth and job creation, these firms have been a major force in commercializing cutting-edge science, whether through their impact on existing industries as with the radical changes in pharmaceuticals catalyzed by venture-backed firms' commercialization of biotechnology, or by their role in developing entirely new industries as with the emergence of the Internet and World Wide Web. The venture capital market thus provides a unique link between finance and innovation, providing start-up and early stage firms – organizational forms particularly well-suited to innovation – with capital market access that is tailored to the special task of financing these high-risk, high-return activities.
It is hardly surprising, then, that other countries have sought to emulate American success in developing an effective venture capital market. At a time when developing countries are increasingly losing manufacturing jobs to low wage countries, and when low wage countries seek industries that depend on more than just cheap labor, creating a venture capital market has become the holy grail of economic development.
In this Article, I seek to identify the core of the U.S. venture capital contracting model, and then assess the extent to which this model provides guidance in fashioning a venture capital market in other countries. This effort proceeds by a number of steps.
Ronald J. Gilson,
Engineering a Venture Capital Market: Lessons from the American Experience,
Stan. L. Rev.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/993