Found 15 article(s) for author 'Venture Capital'

Coordination Frictions in Venture Capital Syndicates

Coordination Frictions in Venture Capital Syndicates. Ramana Nanda, Matthew Rhodes-Kropf, April 11, 2017, Paper, “An extensive literature on venture capital has studied asymmetric information and agency problems between investors and entrepreneurs, examining how separating entrepreneurs from the investor can create frictions that might inhibit the funding of good projects. It has largely abstracted away from the fact that a startup typically does not have just one investor, but several VCs that come together in a syndicate to finance a venture. In this chapter, we therefore argue for an expansion of the standard perspective to also include frictions within VC syndicates.Link

Tags: , , , ,

The Persistent Effect of Initial Success: Evidence from Venture Capital

The Persistent Effect of Initial Success: Evidence from Venture Capital. Ramana Nanda, 2017, Paper, “We used data on individual investments in the portfolios of venture capital firms to study persistence in their performance. Each additional IPO among a VC’s first five investments predicted a 13% higher IPO rate for its subsequent 50 investments. Roughly half of this performance persistence stemmed from investment “styles”?investing in particular regions and industries. We found no evidence of performance persistence stemming from a differential ability to select or govern portfolio companies. Rather, our results suggest that early success in venture investing yields better deal ow in subsequent investments, thereby perpetuating differences in the outcomes of initial investments.Link

Tags: , , ,

Financing Risk and Innovation

Financing Risk and Innovation. Ramana Nanda, Matthew Rhodes-Kropf, March 2016, Paper, “We provide a model of investment in new ventures that demonstrates why some places, times, and industries should be associated with a greater degree of experimentation by investors. Investors respond to financing risk, a forecast of limited future funding, by modifying their focus to finance less innovative firms. In equilibrium, financing risk disproportionately impacts innovative ventures with the greatest real option value by creating a trade-off between protecting the firm from financing risk and maximizing its real option value. We propose that extremely novel technologies may need ‘hot’ financial markets to get through the initial period of discovery or diffusion. This paper was accepted by Gustavo Manso, finance.Link

Tags: , , , , ,

Pay Now or Pay Later? The Economics within the Private Equity Partnership

Pay Now or Pay Later? The Economics within the Private Equity Partnership. Victoria Ivashina, Josh Lerner, March 26, 2016, Paper. “The article focuses on the importance of equity partnerships that are essential to the professional service and investment sectors. It examines private equity partnerships and shows that the allocation of fund economics to individual partners is divorced. It mentions that departures of senior partners have negative effects on the ability of funds to raise additional capital.Link

Tags: , , , , , , ,

Regional Variation in Venture Capital: Causes and Consequences

Regional Variation in Venture Capital: Causes and Consequences. Ramana Nanda, Matthew Rhodes-Kropf, March 22, 2016, Book Chapter. “Entrepreneurship is a central element of the Schumpeterian process of creative destruction (Schumpeter, 1942). Startups have been associated with the birth of important new industries such as semiconductors and computers, the internet and biotechnology, and there is increasing evidence of the important role that startup firms play in driving aggregate productivity growth in the economy (Aghion and Howitt, 1992; King and Levine, 1993; Foster et al., 2008).Link

Tags: , , , , ,

Inside Rounds and Venture Capital Returns

Inside Rounds and Venture Capital Returns. Matthew Rhodes-Kropf, December 27, 2015, Paper. “We study sequential investment decisions in the venture capital (VC) industry. VC-backed companies typically need to raise several rounds of funding from VC funds. The decision whether to provide further funding to the company and the terms of the new funding determine VC fund returns. We show that investment outcomes in the VC industry can be predicted by whether a round of funding is provided by only VCs who previously invested in the firm, or new VCs join the syndicate of investors. With asymmetric information, financial intermediaries are often thought to “hold up” firms and earn rents on their inside knowledge. However, we show that inside rounds, in which only existing investors participate, lead to a higher likelihood of failure, lower probability of IPOs, and lower cash on cash multiples than rounds with new investors. Inside rounds also appear to be negative NPV, suggesting that investors make inefficient continuation decisions …Link

Tags: , , ,

Cost of Experimentation and the Evolution of Venture Capital

Cost of Experimentation and the Evolution of Venture Capital. Ramana Nanda, Matthew Rhodes-Kropf, December 2015, Paper. “We study adaptation by financial intermediaries as a response to technological change in the context venture-capital finance. Using a theoretical model and rich data, we are able to both document and provide a framework to understand the changes in the investment strategy of VCs in recent years – an increased prevalence of investors who “spray and pray” – providing a little funding and limited governance to an increased number of startups that they are more likely to abandon, but where early experiments significantly inform beliefs about the future potential of the venture. We also highlight how this adaptation by financial intermediaries has altered the trajectory of aggregate innovation away from complex technologies where initial experiments cost more towards those where information on future prospects is revealed quickly and cheaply …Link

Tags: , , , ,

The Origins of High-Tech Venture Investing in America

The Origins of High-Tech Venture Investing in America. Tom Nicholas, October 2015, Book Chapter. “The United States has developed an unparalleled environment for the provision of high-tech investment finance. Today it is reflected in the strength of agglomeration economies in Silicon Valley, but historically its origins lay in the East Coast. Notably, the New England Council’s immediate post-WWII efforts to create the American Research and Development Corporation created a precedent for “long-tail” high-tech investing. This approach became institutionalized in America over subsequent decades in a way that has been difficult to replicate in other countries. The role of history helps to explain why.Link

Tags: , , ,

Inside Rounds and VC Returns

Inside Rounds and VC Returns. Matthew Rhodes-Kropf, May 4, 2015, Paper. “We study sequential investment decisions in the venture capital (VC) industry. VC-backed companies typically need to raise several rounds of funding from VC funds. The decision whether to provide further funding to the company and the terms of the new funding determine the returns of VC funds and their ability to back successful companies. We show that investment outcomes in the VC industry can be predicted by whether the existing VC investors can attract new outside investors to participate in the next round. Inside rounds, in which only existing investors participate, lead to a higher likelihood of failure, lower probability of IPOs, and lower cash on cash multiples than outside rounds. We explore a number of possible explanations for this result including escalation of commitment, mismeasurement of returns and too little capital. The strong relationship between inside rounds and outcomes remains.” Link

Tags: , ,

Immigrant Entrepreneurship

Immigrant Entrepreneurship. William R. Kerr, December 2014, Paper. “This chapter examines immigrant entrepreneurship and the survival and growth of immigrant-founded businesses over time relative to native-founded companies. We quantify immigrant contributions to new firm creation in a wide variety of fields and using multiple definitions. While significant research effort has gone into understanding the economic impact of immigration into the United States, comprehensive data for quantifying immigrant entrepreneurship are difficult to assemble…” Link

Tags: , , , , , , , ,