The Volatility Of Venture Capital Market And Enterprise Innovation

The paper first employs the supply and demand framework to understand the volatility of venture capital market, and explores why shifts in opportunities often do not rapidly translate into increased fund-raising. The discussion also highlights the tendency of the venture capital supply, when it does finally adjust to shifts in demand, to react in an excessively dramatic manner. The paper explores how herd behavior in the venture investment process may lead to this"overshooting"phenomenon. Then, the paper specially explores the volatility of China's venture capital market.Next, the paper considers the implications of these shifts for enterprise innovation according to the evidence from U.S.A and China. It argues that the effects of venture capital on innovation are not uniform. During boom periods, the prevalence of overfunding of particular sectors can lead to a sharp decline in terms of venture funds'effectiveness. And prolonged downturns may eventually lead to good companies going unfunded.In the conclusion, the paper considers some of the implications for public policy. The analysis suggests that, while the rise of venture capital has been an important contributor to technological innovation and economic prosperity, an effective policy agenda going forward will not simply seek to spur much venture financing. The paper highlights the fact that many of the policies have exacerbated the cyclical nature of venture funding. Instead, the environment for venture capital investment can be substantially improved by government policies that encourage private investment and address gaps in the private funding process. In short, the paper argues that policymakers have to view efforts to assist young firms within the context of the changing private-sector environment.