VC-backed innovation and recessions

Governments worldwide have taken steps to bolster their venture capital sectors in response to the Covid-19 crisis.

This column questions whether venture-backed innovation is particularly vulnerable to economic downturns and finds that early-stage venture investment falls sharply during recessions. The quantity and quality of venture-backed innovation declines particularly for early-stage firms, underscoring the concerns that motivate such policy initiatives. Still, questions remain about the optimal design and public return of these expenditures.

In the wake of the Covid-19 crisis, governments…