The driving forces of venture capital investments

We have examined the volatility and macroeconomic drivers of venture capital (VC) investments in the past 17 years from 1995 to 2011. We find that VC investments in the United States (US) by the total amount, by the number of deals, and by the average amount per deal are significantly affected by macroeconomic factors and public market signals. The fundamental changes in economic situations (i.e. the 2000 high-tech bubble; the 2008 global financial crisis) had substantial impact on the US VC industry. In response to these dramatic changes, venture firms adjust their risk preferences and investment strategies by securing fewer deals with a smaller average amount per deal in general, increasing their allocations to the expansion and later-stage investments, and injecting a lower percent of cash in the first several financing sequences as opposed to their total committed investments to a company. We also find the impact of 2008 global financial crisis and economic recession on the VC industry is somewhat different from that of the 2000 dot-com bubble.