Venture Capital drives US economy

Venture capital has become the dominant form of financing innovative American companies, says research form the Stanford Graduate School of Business. By now, VC-backed firms create employment and invest heavily in R&D.

Three out of the five largest companies in the world received most of their early external financing from venture capitalists. 43 percent of public US companies founded since 1979 received venture capital. Those firms make up 57 percent of market capitalisation, create 38 percent of employment among public US firms and account 82 percent of money spend on research and development, says research form the Stanford Graduate School of Business.

Focusing only on publicly listed firms, as those are the only ones with reliable information whether they received VC funding, the study is likely to underestimate the impact that venture capital has on the economy. Moreover, the research categorises firms only as “VC-backed” if they were funded by VCs in the early stage as defined by Thomson One data.

Although the research underlines the importance of venture capital clearly, the authors state that it both, overestimates and underestimates, the importance of venture capital. The research overstates venture capital as firms might have been successful even without venture capital but underestimated the effect as the technology produced by firms had not just an effect on the firms as captured in the figures above but also on the entire ecosystem of firms in the economy.