Venture capital-backed companies account for 41% of total US market capitalization and 62% of US public companies’ R&D spending. Among public companies founded within the last fifty years, VC-backed companies account for half in number, three quarters by value, and more than 92% of R&D spending and patent value. The US did not spawn top public companies at a higher rate than other large, developed countries prior to 1970s ERISA reforms, but produced twice as many after it. Using those reforms as a natural experiment suggests that the US VC industry is causally responsible for the rise of one-fifth of the current largest 300 US public companies and that three-quarters of the largest US VC-backed companies would not have existed or achieved their current scale without an active VC industry.

Prior to the 1974 Employee Retirement Income Security Act (ERISA), managers and trustees of private pension funds followed Mark Twain’s famous quip when it came to investing in risky assets: “October: This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February.” As it was legally risky for institutional investors to invest in assets perceived as excessively risky, managers of VC funds struggled to secure institutional capital. ERISA allowed pension fund trustees to invest in the “alternative” asset space for the first time. This change led VC funds and other investment vehicles such as mutual funds, private equity funds, and hedge funds to come into prominence