Venture Capital Evolution
VCs play essential roles in funding the commercialization of new technologies. Thus, the emergence of a VC investment category is important for technological innovation and business formation (Florida & Kenney, 1988a, 1988b; Lerner, 2002; Oakey, 2003; Samila & Sorenson, 2010a; Timmons & Bygrave, 1986). Despite this importance, there has been “little research ...[on] the industrial organization of the VC industry and its evolution over time.” (Da Rin et al., 2011, p. 100). The creation of markets is typically described as an evolutionary development in a systemic environment (Hekkert et al., 2007; Nelson & Winter, 1982). Karaomerlioglu and Jacobsson (2000, p. 77) argue that “a VC industry evolves as a function of the institutional set-up in the economy”.
In national contexts, government policy influences evolutionary development of VC investment classes and the overall VC industry (Lerner, 2009; S. White, Gao, & Zhang, 2005). White et al. (2005) confirms the importance of governments creating a macroeconomic environment that supports a national venture capital industry. A VC industry also requires a sufficiently active entrepreneurial community for investments as well as open capital markets for exiting investments (Da Rin, Nicodano, & Sembenelli, 2006a; Jeng & Wells, 2000; Kenney, 2011a).
In contrast to the institutionalized VC markets in the USA, Israel and Taiwan, research on VC market growth in the German, European, Hong Kong, and Swedish VC markets (Becker & Hellmann, 2003; Bottazzi & Da Rin, 2002; Chu & Hisrich, 2001; Karaomerlioglu & Jacobsson, 2000) and Asian markets (Dossani & Kenney, 2002; Kenney, Han, & Tanaka,, 2004) shows that internal and external forces drive the VC market evolution. Industry level research has examined several aspects of general VC historic development or its development in certain countries and regions. It reveals cyclicality in the investment process, the level of funding, as well as the returns on subsequent investments (Bygrave, Fast, Khoylian, Vincent, & William, 1989; Gompers & Lerner, 2001). For example, Murray (1995) concludes that by the mid of the 1990s the VC industry as a whole had reached a maturity stage as described in Porter’s (1980) model of industry maturity. To ensure a future path for the industry, investments into new industries or categories is necessary (Badino, Hu, & Hung, 2006). For this reason, VC investments follow a life-cycle process, where investments begin, grow and decline over time.