How Does VC Affect the Global Economy?
As a venture capital firm, Effi Enterprises seeks out emerging businesses that are in need of the funding necessary to grow into a thriving, public company. These early-stage companies have extreme potential for improvement, but assistance from a firm like Effi Enterprises is all they lack. In exchange for equity in the company, venture capital firms will invest large amounts of financial capital into the startup to give it the boost necessary to become successful. As an entrepreneur, Efraim Landa, the founder of Effi Enterprises, understands the importance of innovation and the promotion of small business to the overall success of the economy.
Venture Capital Causes Economic Growth
Venture capital markets have evolved around the world since the 1980s fuelled by public and private efforts. It has proven to be beneficial in the crucial stages of early development for businesses in countries all over the world. Increasingly, there is a global awareness that the global economy will not reach its potential without promoting the innovation of entrepreneurs and supporting the emerging businesses who are so crucial to long-term economic growth. It has been accepted as an important tool to supporting the development of high-growth companies that create jobs and generate wealth and therefore contribute to overall growth of an economy. Venture capital is a stimulator for job creation, innovation, technological advancement, international competitiveness, and increased tax revenues. The accumulation of venture capital is a significant factor contributing directly to productivity growth. Deutsche Bank Research claims that an increase venture capital investment of 0.1% is statistically associated with an increase in real GDP growth of 0.30 pp and early-stage investments have an even greater impact of 0.96 pp. Extensive research on the effects of venture capital investments has suggested that this is a direct causality between venture capital investments to growth.
Benefits of VC to the Economy
Although long established companies are crucial to an economy in many important ways, small and medium-sized enterprises contribute are necessary for the long-term vitality of any country’s economy. A positive link has been found between the SME’s share of total economic activity and total economy growth of a country. Small companies can be more flexible and can shift much easier to grasp opportunities as they arise. They are important for an economy’s ability to restructure and innovate. These young business ventures are often the first to embrace new technology and turn them into successful commercial products. Venture capital is a type of funding available to promote the growth of these small and medium sized businesses to contribute overall the growth of the economy by stimulating startup activity, expanding the number of jobs, and increasing aggregate demand. Venture capital is crucial in reinforcing innovative activity and entrepreneurial talent and can overcome some of the barriers to growth caused by industrial and institutional structures. Venture capital funds promote the financial industry at large because the success of venture capital demonstrates the usefulness of certain financial innovations, benefits banks as they provide a large part of overall startup money, fill the IPO pipeline, and bring new ideas and competition to the market.
Countries with high venture capital activity typically have stronger economic growth, while not all high-growth countries have a vibrant venture capital market, suggesting a high venture capital performance to be a contributor to economic growth. A vibrant venture capital market is conducive to technological progress and it is able to promote innovation, allows small businesses to expand and be successful, and has a direct correlation with overall economic growth. Its effects are positive for individual countries and because of the interconnectedness and dependencies of the network of each nation’s economy; it provides a boost to the overall global economy.