Investment Cycles and Startup Innovation

Ramana Nanda and Matthew Rhodes-Kropf

No 12-032, Harvard Business School Working Papers from Harvard Business School

Abstract: We find that VC-backed firms receiving their initial investment in hot markets are more likely to go bankrupt, but conditional on going public are valued higher on the day of their IPO, have more patents and have more citations to their patents. Our results suggest that VCs invest in riskier and more innovative startups in hot markets (rather than just worse firms). This is particularly true for the most experienced VCs. Furthermore, our results suggest that the flood of capital in hot markets also plays a causal role in shifting investments to more novel startups - by lowering the cost of experimentation for early stage investors and allowing them to make riskier, more novel, investments.

Keywords: Venture Capital; Innovation; Market Cycles; Financing Risk (search for similar items in EconPapers)
JEL-codes: G24 G32 O31 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2011-10, Revised 2012-12
New Economics Papers: this item is included in nep-ent, nep-ino and nep-knm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.hbs.edu/faculty/pages/download.aspx?name=12-032.pdf (application/pdf)

Related works:
Journal Article: Investment cycles and startup innovation (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hbs:wpaper:12-032

Access Statistics for this paper

More papers in Harvard Business School Working Papers from Harvard Business School Contact information at EDIRC.
Bibliographic data for series maintained by HBS ().