The Venture Capital Cycle

By Josh Lerner and Paul A. Gompers

Book Overview

In The Venture Capital Cycle, Paul Gompers and Josh Lerner correct widespreadmisperceptions about the nature and role of the venture capitalist and provide an accessible andcomprehensive overview of the venture capital industry. Bringing together fifteen years ofground-breaking research into the form and function of venture capital firms, they examine thefund-raising, investing, and exit stages of venture capitalists. Three major themes run throughoutthe process: venture investors confront tremendous information and incentive problems; venturecapital processes are inherently interrelated, and a complete understanding of the industry requiresa full understanding of the venture cycle; and, unlike most financial markets, the venture capitalindustry adjusts very slowly to shifts in the demand for and the supply of investment capital.Thissecond edition has been thoroughly revised in light of recent research findings, and includes sixnew chapters. The first part, on fund-raising, now includes a chapter that examines what determinesthe level of venture capital fund-raising and how tax policy influences the demand for venturecapital. Three new chapters in the second part, on investing, examine what kind of distortions areintroduced when the venture capital market goes dramatically up, a question prompted by the1999-2000 market bubble; demonstrate that the venture capital industry does indeed spur innovation,an important determinant of economic growth; and examine whether and under what circumstancesgovernments can be effective venture capitalists. Two new chapters in the third part, on exitingventure capital investments, discuss whether venture capital firms affiliated with investment-banksare prone to conflicts of interest with public offerings and how lockups on initial public offeringsare used to limit conflicts of interest.

• Format: Hardcover
• Language: English
• ISBN: 0262072556
• ISBN13: 9780262072557
• Release Date: January 2004
• Publisher: Mit Pr
• Length: 568 Pages
• Weight: 2.90 lbs.
• Dimensions: 9.5" x 1.8" x 7.5"

Customer Reviews

The standard

This was one of the better books I've read on VC. Extremely well researched, very informative, though it took awhile to read. Recommended.

Valuable and clear info for both sides of the vc process

We used this book in an MBA course on Venture Capital here at the University of Michigan b-school. I think this is an excellent book.First, do NOT expect to be a book full of venture capital anecdotes. While that is always intersting, this book is a serious treatment of what the venture capital business is about: how funds are raised, how venture capitalists arrange deals to ensure adequate compensation for their risk, how investments are staged, how the investments are managed, exit strategies and methods, and more.This is a lot to cover in a book of approximately 350 pages, but it is all covered very well. The writing is quite clear and readable. Though this is not a book for the general reader, it is not difficult to read if you have some background understanding of business theory and a touch of finance.What is so helpful about reading this book is that people seeking venture capital will understand more about why things are structured they way they are. It isn't just arbitrary greed and control. It is a business deal that requires an expected positive return - you know - making money (which does concern self-interest (greed) and structure (control) - but with slightly more reasoning).While people seeking to make venture investments will immediately understand why they need something like this book and a whole lot more, I believe it is essential for people seeking investment money to also have a significant understanding of this process. Why? Because the venture capitalists understand this process completely and the people seeking investments usually don't do enough of these deals to really know what is going on. And if they are too blind they will be sheared like sheep. They need to understand all the interests involved so they can argue on their own behalf and make the deal as favorable as they can.In any case, while this isn't the only book you should read on the subject it is certainly a good one. It is of manageable length with a great deal of clear and helpful information. I find this topic fascinating.

Deserves 5 stars for what it obviously was intended to be

Considering the fact that this book was written by 2 professors at the Harvard Business School and was published by a prestigious academic press (the MIT Press), it should seem obvious to anyone with some degree of intellectual sophistication that this book was intended to be an academic/research take on the venture capital industry. On that level, this book scores a solid 5 stars (especially since there is nothing like this book out there). For some strange reason people have gotten the impression that this book should be filled with 'war stories' of VCs and entreprenuers, sayings of business gurus, and other back-slapping, feel good cliches instead of rigourous scientific evidence. When these people find themselves disappointed (despite the obvious fact that this is a research oriented book) they accuse this book of being "not practical" or being only for eggheads. While it is true that this book is not going to be full of bar room banter about how one can get rich quick, keep in mind the fact that most VCs and entrepreneurs are in the business of sophisticated and highly technical ideas. If VCs and entrepreneurs have a great deal of intellectual sophistication, wouldn't they find a book full of empirical and deductive evidence about their field be interesting and possibly valuable? Food for thought.

Excellent & Intellectual

Loved the book. It won't appeal to someone not accustomed to reading academic work, but is thoroughly informative. They've really gone the extra mile to bring to you detailed information about this secretive industry. They leave no stone unturned. I also appreciated the non-judgemental approach. They explore all reasonable hypothesis of each question or topic - and back up their conclusions with real analysis. This is not a book of some opinionated gurus telling you thoughts off-the-cuff. Everything is substatiated.

Excellent academic overview

An excellent review of the academic side of venture capital investing. Topics are current, although the data tends to be dated. A must-have reference for anyone in the VC industry.