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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)
New Economics Papers: this item is included in nep-ent, nep-ino and nep-knm
Date: 2011-10, Revised 2012-12
References: View references in EconPapers View complete reference list from CitEc
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Journal Article: Investment cycles and startup innovation (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:hbs:wpaper:12-032

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