Venture capital (VC) firms typically make early, high-risk, high-expected-return investments. VC reputation is the perception in the minds of investors that a VC firm will create value for investors.[Page 891] This entry discusses the beneficial effects of a good reputation for VC firms and ways to measure it.

The very presence of VC investment in a firm going public may have a certification effect, lowering costs for the issuing firm by attracting top underwriters and institutional investors. However, reports in the popular press indicate that all VC firms are not equal: the largest 20 percent of the firms manage about 80 percent of the industry’s capital, according to the Wall Street Journal. Some younger VC firms may take a firm public suboptimally early to earn a ...