VENTURE CAPITAL GROWING PAINS - SHOULD THE MARKET DIET

This paper examines recent trends in the venture capital market and cu rrent research that explores the impact of these trends. High returns in the venture capital industry caused by the surging market for ventu re-backed initial public offerings and recent reductions in the capita l gains tax rate have led to dramatic increases in venture capital com mitments. This rise in fundraising has had dramatic effects on various segments of the venture capital market which may indicate overheating . The terms and conditions of venture capital limited partnerships hav e changed reflecting the growth in demand for venture capital services . The share of profits retained by venture capitalists has increased w hile the restrictiveness of the partnership agreements has eased. Vent ure firms are raising substantially larger funds with increasing press ure to find investments, thereby moving to later stage investments. Th e price of investments has also responded to the growing desire to inc rease investment. Finally, institutional investors are increasingly lo oking internationally for new investment opportunities in venture capi tal to avoid potential market excesses. (C) 1998 Published by Elsevier Science B.V. All rights reserved.