The determinants of a successful venture capital market

Abstract

The main objective of this research is to study the macro-economic determinants of venture capital investments in the U.S and the E.U. using time-series models and quarterly data from 1985 to 2013. Amongst the tested variables, there are those that have been previously tested in existing literature on the subject such as GDP growth, interest rates, unemployment, inflation, IPOs and stock market returns as well as a newly introduced variable; the Thomson Reuters Venture Capital Research Index. This index is highly representative of the venture capital industry in the U.S. In addition, dummy variables account for the effects of the dotcom bubble and the recent crisis on the industry. Prior to the analysis of findings, several diagnostic tests were run to ensure model credibility. Similar to what other authors obtained, conclusions suggest that interest rates and IPOs have a great influence on the venture capital market. U.S. and European markets are affected by the same factors with the exception that the stock return variable does not show a significant impact on European markets.