What Is The Effect Of The Current Financial Crisis On Venture Capital Financing? Empirical Evidence From US Internet Start-Ups

Employing a large dataset regarding venture capital investments in US Internet firms, the authors analyze the effect of the current financial crisis on the venture capital market. Using regression analysis, they find that the financial crisis led to a 20% decrease in the average amount of funds raised per funding round. This effect, however, can only be found in later funding rounds. They argue that firms in later financing rounds that need capital to survive cannot avoid a deduction induced by the financial crisis, whereas firms that seek initial funding postpone their funding and expansion plans until the capital markets have stabilized.