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Abstract
Using a newly digitized historical dataset of over 450,000 U.S. scientists, this paper examines whether venture capital (VC) facilitates the commercialization of innovative ideas through new business formation. I exploit the reform of the "prudent man" rule as a quasi-natural experiment that positively shocks the supply of VC funding. Across the full sample, scientists with intangible work specialties—who would ex ante be more likely to benefit from VC—experienced a 6% increase in business formation relative to those with tangible specialties, an effect that was concentrated in counties with VC presence. Among the subsamples of scientists employed in the private sector, earning higher wages, and named as inventors on patents, the relative increase was as high as 26%. I rationalize the results through an occupational choice model in which VC funding alleviates financial constraints for those with higher productivity. These individual-level effects contributed to the growth of intangible industries at the county level and persisted through the end of my sample period.
