We use data over 25 years to understand the life cycle dynamics of VC-and non-VCfinanced firms. We find successful and failed VC-financed firms achieve larger scale but are not more profitable at exit than matched non-VC-financed firms. Cumulative failure rates of VC-financed firms are lower, with the difference driven largely by lower failure rates in the initial years after receiving VC. Our results are not driven by VCs disguising failures as acquisitions or by certain types of VCs. The performance difference between VC-and non-VC-financed firms narrows in the post-internet bubble years, but does not disappear.The Journal of Finance R remain. In particular, much of our understanding about VC-financed firms comes from analysis of firms that are successful and survive. We have little understanding of VC-financed firms that fail, as well as the counterfactual-the life cycle dynamics of firms that could potentially use VC but do not.Part of the reason that studying these questions is difficult is the scarcity of data on private firms-particularly new non-VC-financed firms. In this paper we use the Longitudinal Business Database (LBD), a panel data set collected by the U.S. Census Bureau that tracks firms from their birth over more than two decades, to address a number of questions related to the role of VC in new firms. Since our data allow large sample identification of firms that do and do not receive VC financing, we are able to characterize and quantify differences between VC-financed and non-VC-financed firms in the early part of their life cycles-from birth to exit-and to shed light on some of the outstanding questions on the role of VC in new firm creation.We first ask how prevalent VC is in new firm creation. From the Census data we see that a statement on the prevalence of VC depends on the measure used. From the point of view of new firm foundings, we find that VC is close to irrelevant. VC-financed firms are an extremely small percentage of all new firms created-accounting for 0.11% over our 25-year sample period from 1981 to 2005 and increasing to 0.22% over the period 1996-2000. If instead of focusing on the number of firms that get VC backing we focus on employment, we get a different picture of the prevalence of VC in new firm creation and in the economy as a whole. When we measure the amount of employment generated by VC-financed firms, including those that have been exited by their original VC investors, we find that these firms account for between 5.3% to 7.3% of employment in the U.S. during the 2001-2005 period, steadily rising from between 2.7% to 2.8% in the 1981-1985 period. Hence, when measured by employment, VC and the companies it finances are quantitatively sizable.We examine which kinds of firms receive VC over our sample period. Our results support the notion that VC invests in firms with no immediate revenues. We find that firms started with no commercial revenues are disproportionately financed by VC. This is true in "high-tech" industries, such as biotech and computers, and in "low-...

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Champaign, the Western Finance Association 2007 meeting, the European Finance Association 2007 meeting and the 4th Annual Conference on Corporate Finance at Washington University for comments and suggestions. We thank Kirk White for his diligent assistance with the data and for helpful comments. Jie Yang and Shouyue Yu provided excellent research assistance. The research in this paper was conducted while the authors were Special Sworn researchers of the U.S. Census Bureau at the Triangle Census Research Data Center. Research results and conclusions expressed are those of the authors and do not necessarily reflect the views of the Census Bureau. This paper has been screened to insure that no confidential data are revealed.

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