Risky Business: Venture Capital, Pivoting and Scaling

Pehr-Johan Norbäck, Lars Persson and Joacim Tåg

No 1444, Working Paper Series from Research Institute of Industrial Economics

Abstract: The creation and scaling of startups are inherently linked to risk-taking, with various types of owners handling these risks differently. This paper investigates the influence of an active venture capital (VC) market on startups' decisions regarding research and scaling. It outlines conditions under which VC-backed startups prefer riskier, yet potentially more rewarding strategies compared to independent startups. VC firms, by means of temporary ownership and compensation structures, introduce "exit costs" that make high-risk strategies more attractive to VC-backed startups. Moreover, an active VC market prompts startups to undertake higher initial risks, as VC firms provide support for pivoting after setbacks. Additionally, the presence of VC intensifies research risk among established firms, as their research initiatives are strategic complements to the risk choices of startups.

Keywords: Entrepreneurship; Pivoting; Research; Scaling; Venture capital (search for similar items in EconPapers)
JEL-codes: G24 L25 M13 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2022-11-18, Revised 2024-04-15
New Economics Papers: this item is included in nep-cfn, nep-ent and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.ifn.se/wfiles/wp/wp1444.pdf Full text (application/pdf)

Related works:
Working Paper: Risky Business: Venture Capital, Pivoting and Scaling (2024)
Working Paper: Risky Business: Venture Capital, Pivoting and Scaling (2024)
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:hhs:iuiwop:1444

Access Statistics for this paper

More papers in Working Paper Series from Research Institute of Industrial Economics Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Elisabeth Gustafsson ().