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Moving Beyond the Valley of Death: Regulation and Venture Capital Investments in Early-Stage Biopharmaceutical Firms

Yujin Kim, Chirantan Chatterjee and Matthew Higgins ()

No 25202, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Can regulation reduce risks associated with investing in early-stage firms? Using the passage of the European Orphan Drug Act (EU-ODA), we examine this question in the biopharmaceutical industry. We provide causal evidence that venture capitalists (VCs) are more likely to invest in early-stage firms operating in sub-fields disproportionately affected by EU-ODA. The switch to early-stage investments appears strongest among VCs that previously faced greater levels of information asymmetry. We also find that the level of syndication declined for early-stage investments and exit performance improved. We conclude discussing the implications of our findings for public policy, entrepreneurship and innovation.

JEL-codes: G24 L51 L65 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-eur, nep-ind, nep-ino and nep-sbm
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