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Financing Entrepreneurial Experimentation

Ramana Nanda () and Matthew Rhodes-Kropf ()

Innovation Policy and the Economy, 2016, vol. 16, issue 1, 1 - 23

Abstract: The fundamental uncertainty of new technologies at their earliest stages implies that it is virtually impossible to know the true potential of a venture without learning about its viability through a sequence of investments over time. We show how this process of experimentation can be particularly valuable in the context of entrepreneurship because most new ventures fail completely, and only a few become extremely successful. We also shed light on important costs to this process of experimentation and demonstrate how these can fundamentally alter both the rate and direction of start-up innovation across industries, regions, and periods of time.

Date: 2016
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