Venture Capital Life Cycle
Kenney (2011a) compares the development of VC to the emergence of an organizational ecology. Thus, the growth of VC as an institution can be compared to an evolutionary process and the analysis of its creation requires a systemic perspective. Building on emergence and industry formation literature (e.g. Abernathy & Utterback, 1978; Klepper, 1996, 1997; Franco Malerba & Orsenigo, 1996) Avnimelech, Kenney, and Teubal (2004) suggest that high-tech industries in the USA and Israel co-evolve with adjoining VC-markets. The authors build a life cycle model reflecting the emergence and evolution of these VC industries and describe it “as a cumulative, selfreinforcing process with a distinctive profile of emergence” (Avnimelech & Teubal, 2006, p. 1494). Moreover, Avnimelech et al. (2004) observed that the evolutionary processes were different. While the US VC emergence was market led,the Israeli VC emergence was policy driven. Lerner (2002) who believes external forces drive the cyclicality of VC markets urges policymakers to accelerate the cycles within the VC market by supporting trending technology classes in order to limit overinvestment in peak periods of the VC market which he calls overshooting. Overshooting makes investments inefficient and leads to disappointing returns and a countering effect of underinvestment in subsequent periods. However, due to the limited longitudinal research on the VC industry, the market indicators that determine when overshooting occurs is not well known. As Dodgson et al. (2008) suggest about research opportunities on evolution within innovation systems and the key constituents therein, there is an opportunity to explore innovation investment systems and forces within venture capital. The innovation system that is explored below is that of clean technology.