The founding rate of venture capital firms in three European countries (1970-1990)

Abstract

The sectorial and environmental forces that facilitate or inhibit the creation of venture capital companies are studied in the 3 European countries where the industry is most developed: the UK, France, and the Netherlands. The focus is on the start-up phase of the industry, the period from 1970-1990. According to the organizational ecology theory, the population density is the major environmental factor that affects the founding rate through 2 processes. Initially, when the density is low, each founding eases new foundings, because the simple prevalence of a form tends to give it legitimacy, the training ground for qualified personnel grows and the supporting networks are widened and strengthened. The founding rate declines as the number of organizations increases, once a threshold is reached. The major hypothesis that is tested is that the population density has an inverted U-shaped effect on the founding rate of venture capital organizations.