Venture Capital and Industry Structure: Evidence from Local US Markets

Abstract

I use a panel of US manufacturing industries to test how venture capital (VC) affects the size distribution of business firms. The estimates suggest that an increase in the supply of VC affects positively mean firm size by increasing the relative share of medium-sized and larger firms. These results are robust to specifications that address the endogeneity in the supply of VC. The empirical evidence is consistent with the idea that VC promotes the “elitization” of firm entry.