Janeway, Nanda, and Rhodes-Kropf review the academic literature on venture capital booms across three areas: what drives large capital inflows into VC, which they show are related to but distinct from broader macroeconomic cycles and stock market fluctuations, and the emerging literature on the real effects those booms have on startup financing. A central focus is how booms and busts shape which types of firms VCs choose to fund and on what terms, independent of actual investment opportunities, drawing on Nanda and Rhodes-Kropf's concept of financing risk, where a forecast of scarce future funding can cause otherwise healthy startups to go unfunded even when the VC itself faces no capital constraint, while a forecast of abundant future funding makes VCs more willing to back radical, unproven innovation. The review also highlights that VC booms are not purely a temporal phenomenon but show up as concentration effects, and cites evidence that the most experienced VCs respond to public market signals by rationally increasing investment in heating-up sectors without a corresponding drop in the performance of those investments, distinguishing skilled responsiveness from indiscriminate herd behavior.

Founders trying to understand why fundraising suddenly gets harder or easier get a rigorous, research-backed explanation beyond simple supply and demand, since the financing risk concept shows that a healthy company can go unfunded purely because VCs expect other investors to pull back later, a dynamic entirely separate from the company's own fundamentals or progress. The finding that boom periods make VCs more willing to fund radical, unproven innovation is a useful strategic insight for founders working on ambitious, less legible ideas, since it suggests the funding environment itself, not just the idea's merit, shapes how receptive investors will be to genuinely novel technology. This is a peer-reviewed academic literature review published in the Annual Review of Financial Economics, making it a reliable, well-sourced entry point for researchers or serious practitioners who want a comprehensive map of the VC boom-bust literature rather than a single standalone empirical study, with 96 references to explore further.