Doing Well by Doing Good? Community Development Venture Capital - Federal Reserve Bank of New York

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Staff Reports

Doing Well by Doing Good? Community Development Venture Capital

September 2012 Number 572

JEL classification: G20, G24, G28

Authors: Anna Kovner and Josh Lerner

This paper examines the investments and performance of community development venture capital (CDVC). We find substantial differences between CDVC and traditional venture capital (VC) investments: CDVC investments are far more likely to be in nonmetropolitan regions and in regions with little prior venture capital activity. Moreover, CDVC is likely to be in earlier-stage investments and in industries outside the venture capital mainstream that have lower probabilities of successful exit. Even after we control for this unattractive transaction mix, the probability of a CDVC investment being successfully exited is lower. One benefit of CDVCs may be their effect in bringing traditional VC investment to underserved regions: When we control for the presence of traditional VC investments, each additional CDVC investment results in an additional 0.06 new traditional VC firm in a region.

Available only in PDF pdf

39 pages / 169 kb

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