AbstractThe relationship between venture capital (VC) and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of financing, venture capitalists evaluate the viability of startups. If viable, venture capitalists provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about VC: statistics by funding round concerning success rates, failure rates, investment rates, equity shares, and initial public offering values. The increased efficiency offered by VC for financing inventive startups is important for long‐run growth and welfare.