The Effects of Alternative Investments on Entrepreneurship, Innovation, and Growth

Abstract

In the past decade, we have witnessed rapid growth in a variety of specialist alternative investment vehicles including venture capital, crowd funding, business angel funds, later-stage private equity, hedge funds, sovereign wealth funds, infrastructure funds, and real-estate funds. The importance of venture capital and angel investment for new firms, especially in high-growth, high-technology sectors, is well known. However, alternative investments span a wide range of company types, from small, early-stage ventures with high-growth rates but little cash flow to large firms inmature industries that generate substantial cash flow. Alternative investment vehicles introduce new forms of financing with different objectives and diverse forms of involvement by investors in portfolio firms. Alternative investors differ widely in skills, goals, experience, and investment time horizons. They often invest across a variety of institutional environments, transferring standard investment approaches from one sector or country to another. Because these alternative equity stakes are generally less liquid than shares in publicly traded enterprises, their growth raises a host of important issues for the organization and governance of portfolio companies, for the structure of industries heavily dependent on alternative investment pools, and for