The aim of this chapter is to present a comprehensive survey of the most significant studies in the domain of venture capital (VC). The latter may be classified into two broad streams – first, those that delve into the ecosystem related aspects of the VC industry and, second, those that probe the micro-level decision-making processes of the individual VC firms per se. While the former visualizes the VC ecosystem as a macro entity, the latter discuss the underlying risks and other challenges encountered by the individual VC firms in their micro-level decisionmaking processes.

Since the motivation of this study is gaining an insight into both these aspects, our review of the literature encompasses both these dimensions. To start with, we begin with an overview of the VC ecosystem as an integrated whole. We then move on to review literature that focuses on the individual VC firm as a micro-entity.

The VC Ecosystem

The VC ecosystem may be viewed as a conventional supply–demand framework (Poterba 1989). The limited partners (LPs), namely fund providers, and general partners (GPs), namely fund managers, constitute the supply side of this ecosystem, whereas the investee firms comprise the demand side. The supply (Ss) and the demand (Dd) sides of the VC ecosystem are each, in turn, affected by a set of systematic and non-systematic influences. Systematic influences refer to the overall macro environment and policy level factors that affect all the concerned economic agents in the system in a more or less uniform manner. The nonsystematic influences are the micro aspects of these economic entities that, in turn, influence their performance. Each of these has been discussed in detail in the following sections. Supply Side of the VC Ecosystem

As noted, the supply side of the VC ecosystem is affected by both systematic and non-systematic factors. At a global level, the systematic influences govern the overall quantum of VC funds allocated to any economy. In general, the LPs are inclined to allocate more VC to better-performing economies. The non-systematic influences refer to the attributes that affect the fund-raising potential of the individual GPs. These in particular depend on the success rates of their historical investments and the relative expertise of the individual VC fund managers.