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Dynamics of High-Growth Young Firms and the Role of Venture Capitalists

June 2025

Written by: Yoshiki Ando

Working Paper Number:

CES-25-38

Abstract

Motivated by the substantial growth and upfront investments of venture capital (VC) backed firms observed in administrative US Census data, this paper develops a firm dynamics model over the life cycle. In the model, startups choose the source of financing from VC, Angel investors, or banks, depending on their growth potential, and invest in innovation. The calibrated model explains the life-cycle dynamics of firms with different sources of financing and implies that venture capitalists' advice accounts for around 22% of the growth of VC-backed firms. A counterfactual economy without VC financing would lose aggregate consumption by around 0.4%.

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investment, macroeconomic, financial, investing, venture, entrepreneur, entrepreneurship, investor, financing, incorporated, loan, debt, equity, funding, fund, invest, asset, founder

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Bureau of Economic Analysis, Longitudinal Business Database, Initial Public Offering, Survey of Industrial Research and Development, Social Security, Department of Homeland Security, North American Industry Classification System, Business Register, Census Bureau Disclosure Review Board, Survey of Business Owners, Business Dynamics Statistics, Business R&D and Innovation Survey, Federal Statistical Research Data Center, D22

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