Dynamics of Venture Capital Investment during periods of Market Boom and Bust

摘要

By the end of the 1990's a large amount of venture capital was invested in the telecommunications and internet industries which became over-funded. During the first years of the new millennium, venture capital investment in these industries collapsed. The purpose of this study is to explore the causes underlying the rise and decline in venture capital and the role of time delays on VC industry performance. A model of venture capital investing is built using the system dynamics simulation approach. The model produces behaviors characteristic of the boom-and-bust. Alternative scenarios, with different model parameters, permit to examine the effects of investment speed on industry performance. The results of the simulations suggest that faster is not always better. Aggressive investment strategies may lead to poor performance for the industry as a whole.