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Access to Venture Capital and the Performance of Venture-Backed Start-Ups in Silicon Valley

Clark University

This article examines start-ups' access to venture capital in Silicon Valley using a comprehensive database. The author finds that Silicon Valley consistently absorbs 20% to 26% of the total venture capital investment in the United States, and start-ups in this region benefit from the abundance of local venture capital. Venture-backed firms in Silicon Valley receive venture capital at a younger age and complete more rounds of financing. On one hand, this better access to capital makes start-ups in Silicon Valley more likely than start-ups elsewhere to complete initial public offerings and helps offset some of the negative effects of intense competition in the region. On the other hand, better access to venture capital is associated with a higher bankruptcy rate, possibly because competition for new ventures makes it more likely that poor business plans will get funding.

Key Words: Silicon Valley • venture capital • performance of start-ups

Economic Development Quarterly, Vol. 21, No. 2, 124-147 (2007)
DOI: 10.1177/0891242406298724


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