NCPA - National Center for Policy Analysis

Crimp In Venture Capital Seen Slowing Innovation

July 30, 2001

The current lackluster economy is discouraging venture capitalists from putting their money behind launches of innovative new products and processes, observers report.

  • While the number of patent applications is expected to be up 12 percent this year, that growth rate is the same as it was in 1999-2000.
  • About 375,000 patent applications are expected to be filed in the fiscal year ending September 30.
  • Venture capitalists invested $103 billion in U.S. companies last year -- about double what they are expected to invest this year.
  • Moreover, they are expected to concentrate more on companies in which they already have investments, rather than on start-ups -- which will probably mean a slowdown in new technologies.

Harvard University researcher Josh Lerner says venture capital is three times as productive as corporate research and development financing in spurring successful innovation.

Paul Gompers, a Harvard Business School professor, says that even if venture capital funding returned quickly to the explosive levels of the late 1990s, it could take four or five years for innovation to catch up.

Source: Jim Hopkins, "Investor Drought Dries Up Innovation," USA Today, July 30, 2001.

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