How does venture capital (VC) financing help the growth of startup firms and impact aggregate output and consumption? Motivated by the substantial growth and upfront investments of VC-backed firms observed in administrative US Census data, this paper develops a firm dynamics model over the life cycle that centers on ex-ante heterogeneity in growth potential, innovation investment, and external financing. In the model, startups choose the source of financing from VC, Angel investors, or banks, where financial frictions arise from bank default costs and costs of raising equity. VC-backed firms achieve substantial growth due to endogenous sorting, equity-based funding, and managerial advice. The calibrated model implies that venture capitalists’ advice accounts for around 22% of the growth of VC-backed firms. A counterfactual economy without VC financing would lose aggregate consumption by around 0.4%.