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Venture capital investment: the role of predator-prey dynamics with learning by doing

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This paper suggests that endogenous dynamics of the 'predator-prey' type can provide a contributing explanation for both high-venture capital concentration by industry and 'boom and bust' industry-level investment dynamics. We propose a model based on the idea that venture capitalists favor industries where they have significant experience and industries with a large pool of good investment opportunities. However, investment 'uses up' opportunities and therefore tends to deplete the pool of unexploited opportunities. The resulting industry-level interactive dynamics naturally give rise to venture capital investment cycles similar to observed patterns.

Keywords: concentration; dynamics; learning; predator-prey; venture capital

Document Type: Research Article


Affiliations: 1: Sauder School of Business, University of British Columbia, Vancouver, Canada 2: Queen's School of Business, Queen's University, Kingston, Canada

Publication date: January 1, 2009

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