Paul A. Gompers

Eugene Holman Professor of Business Administration

Paul Gompers, Professor of Business Administration at the Harvard Business School, specializes in research on financial issues related to start-up, high growth, and newly public companies. Professor Gompers has an appointment in both the Finance and Entrepreneurial Management areas. He received his A.B. summa cum laude in biology from Harvard College in 1987. After spending a year working as a research biochemist for Bayer Chemical AG, he attended Oxford University on a Marshall Fellowship where he received an M.Sc. in economics. He completed his Ph.D. in Business Economics at Harvard University in 1993. Professor Gompers spent two years as an Assistant Professor of Finance at the Graduate School of Business, the University of Chicago where he created a new course entitled 'Entrepreneurial Finance and Management.' His course development efforts at the Harvard Business School focuses on issues affecting entrepreneurial firms and their investors.  He also teaches in HBS Executive Education.
Paul Gompers, Professor of Business Administration at the Harvard Business School, specializes in research on financial issues related to start-up, high growth, and newly public companies. Professor Gompers has an appointment in both the Finance and Entrepreneurial Management areas. He received his A.B. summa cum laude in biology from Harvard College in 1987. After spending a year working as a research biochemist for Bayer Chemical AG, he attended Oxford University on a Marshall Fellowship where he received an M.Sc. in economics. He completed his Ph.D. in Business Economics at Harvard University in 1993. Professor Gompers spent two years as an Assistant Professor of Finance at the Graduate School of Business, the University of Chicago where he created a new course entitled 'Entrepreneurial Finance and Management.' His course development efforts at the Harvard Business School focuses on issues affecting entrepreneurial firms and their investors.  He also teaches in HBS Executive Education.

His research focuses on the structure, governance, and performance of private equity funds; sources of financing, incentive design, and performance of private firms; and long-run performance evaluation for newly public companies. His work on private equity funds has examined the relationship between general partners and their portfolio companies. Gompers has investigated factors affecting the structure, timing, and monitoring activities by the general partner and how these factors affect the success or failure of entrepreneurial firms. Similarly, he has examined the relationship between institutional investors and private equity fund managers. This work has examined a large collection of partnership agreements and examined issues of compensation, covenants and restrictions, as well as distribution policy and performance. Other research efforts examine the institutional and market factors that influence the performance of newly public companies. He is a Faculty Research Fellow in the National Bureau of Economic Research's Corporate Finance Program.


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Books

Journal Articles

  1. Performance Persistence in Entrepreneurship and Venture Capital

    Paul A. Gompers, Josh Lerner, David Scharfstein and Anna Kovner

    This paper presents evidence of performance persistence in entrepreneurship. We show that entrepreneurs with a track record of success are much more likely to succeed than first-time entrepreneurs and those who have previously failed. In particular, they exhibit persistence in selecting the right industry and time to start new ventures. Entrepreneurs with demonstrated market-timing skill are also more likely to outperform industry peers in their subsequent ventures. This is consistent with the view that if suppliers and customers perceive the entrepreneur to have market-timing skill, and is therefore more likely to succeed, they will be more willing to commit resources to the firm. In this way, success breeds success and strengthens performance persistence.

    Keywords: Performance; Entrepreneurship; Venture Capital; Market Timing; Competency and Skills; Customers; Resource Allocation; Success; Business Startups;

    Citation:

    Gompers, Paul A., Josh Lerner, David Scharfstein, and Anna Kovner. "Performance Persistence in Entrepreneurship and Venture Capital." Journal of Financial Economics 96, no. 1 (April 2010): 731–764. View Details
  2. Extreme Governance: An Analysis of Dual-Class Firms in the United States

    Paul A. Gompers, Joy Ishii and Andrew Metrick

    We construct a comprehensive list of dual-class firms in the United States and use this list to analyze the relationship between insider ownership and firm value. Our data have two useful features. First, since dual-class stock separates cash-flow rights from voting rights, we can separately identify the impact of each. Second, we address endogeneity concerns by using exogenous predictors of dual-class status as instruments. In single-stage regressions, we find strong evidence that firm value is increasing in insiders' cash-flow rights and decreasing in insider voting rights. In instrumental variable regressions, the point estimates are similar but the significance levels are lower.

    Keywords: Voting; Cash Flow; Stocks; Rights; Ownership Stake; Value; United States;

    Citation:

    Gompers, Paul A., Joy Ishii, and Andrew Metrick. "Extreme Governance: An Analysis of Dual-Class Firms in the United States." Review of Financial Studies 23, no. 3 (March 2010). View Details
  3. Buy Local? The Geography of Successful Venture Capital Expansion

    Henry Chen, Paul A. Gompers, Anna Kovner and Josh Lerner

    We document geographic concentration by both venture capital firms and venture capital-financed companies in three metropolitan areas: San Francisco, Boston, and New York. We find that venture capital firms locate in regions with high success rates of venture capital-backed investments. Geography is also significantly related to outcomes. Venture capital firms based in locales that are venture capital centers outperform, regardless of the stage of the investment. This outperformance arises from outsized performance outside of the venture capital firms's office locations, including in peripheral locations. If the goal of state and local policy makers is to encourage venture capital investment, outperformance of non-local investments suggests that policy makers might want to mitigate costs associated with established venture capitalists investing in their geographies rather than encouraging the establishment of new venture capital firms.

    Keywords: Venture Capital; Expansion; Success; Capital; Geographic Location; Business Units; Corporate Accountability; Business Offices; Goals and Objectives; Mission and Purpose; Investment Funds; Corporate Governance; Boston; New York (state, US); San Francisco;

    Citation:

    Chen, Henry, Paul A. Gompers, Anna Kovner, and Josh Lerner. "Buy Local? The Geography of Successful Venture Capital Expansion." Journal of Urban Economics 67, no. 1 (January 2010): 90–110. View Details
  4. Specialization and Success: Evidence from Venture Capital

    Paul A. Gompers, Anna Kovner and Josh Lerner

    This paper examines how organizational structure affects behavior and outcomes, studying the performance of different types of venture capital organizations. We find a strong positive relationship between the degree of specialization by individual venture capitalists at a firm and its success. When the individual investment professionals are highly specialized themselves, the marginal effect of increasing overall firm specialization is much weaker. The poorer performance by generalists appears to be due to both an inefficient allocation of funding across industries and poor selection of investments within industries. Venture capital organizations with more experience tend to outperform those with less experience.

    Keywords: Experience and Expertise; Venture Capital; Organizational Structure; Outcome or Result; Performance Effectiveness; Behavior; Financial Services Industry;

    Citation:

    Gompers, Paul A., Anna Kovner, and Josh Lerner. "Specialization and Success: Evidence from Venture Capital." Journal of Economics & Management Strategy 18, no. 3 (Fall 2009): 817–844. View Details
  5. Venture Capital Investment Cycles: The Impact of Public Markets

    Paul Gompers, Anna Kovner, Josh Lerner and David Scharfstein

    It is well documented that the venture capital industry is highly volatile and that much of this volatility is associated with shifting valuations and activity in public equity markets. This paper examines how changes in public market signals affected venture capital investing between 1975 and 1998. We find that venture capitalists with the most industry experience increase their investments the most when public market signals become more favorable. Their reaction to an increase is greater than the reaction of venture capital organizations with relatively little industry experience and those with considerable experience but in other industries. The increase in investment rates does not affect the success of these transactions adversely to a significant extent. These findings are consistent with the view that venture capitalists rationally respond to attractive investment opportunities signaled by public market shifts.

    Keywords: Venture Capital; Investment; Experience and Expertise; Public Equity; Volatility; Financial Services Industry;

    Citation:

    Gompers, Paul, Anna Kovner, Josh Lerner, and David Scharfstein. "Venture Capital Investment Cycles: The Impact of Public Markets." Journal of Financial Economics 87, no. 1 (January 2008): 1–23. (Earlier versions distributed as National Bureau of Economic Research Working Paper No. 11385.) View Details
  6. Entrepreneurial Spawning: Public Corporations and the Formation of New Ventures, 1986-1999

    Paul A. Gompers, Josh Lerner and David S. Scharfstein

    Keywords: Entrepreneurship; Business Startups; Public Ownership;

    Citation:

    Gompers, Paul A., Josh Lerner, and David S. Scharfstein. "Entrepreneurial Spawning: Public Corporations and the Formation of New Ventures, 1986-1999." Journal of Finance 60, no. 2 (April 2005): 577–614. (Earlier version distributed as National Bureau of Economic Research Working Paper No. 9816.) View Details
  7. The Determinants of Board Structure at the Initial Public Offering

    Malcolm Baker and Paul Gompers

    This paper describes board size and composition and investigates the role of venture capital in a sample of 1,116 firms' initial public offerings. First, firms backed by venture capital have fewer insider and instrumental directors and more independent outsiders. Second, we consider board composition as the outcome of a bargain between the CEO and outside shareholders. Representation of independent outsiders on the board decreases with the power of the CEO--tenure and voting control--and increases with the power of outside investors--venture capital backing and venture firm reputation. Third, within the sample of firms financed by venture capital and also consistent with a bargaining model, the probability that a founder remains as CEO is decreasing in venture firm reputation. Finally, we examine the influence of venture capital backing and board structure on firm outcomes in the 10 years after the initial public offering.

    Keywords: Governing and Advisory Boards; Venture Capital; Initial Public Offering; Managerial Roles; Power and Influence;

    Citation:

    Baker, Malcolm, and Paul Gompers. "The Determinants of Board Structure at the Initial Public Offering." Journal of Law & Economics 46, no. 2 (October 2003): 569–598. View Details
  8. The Role of Lockups in Initial Public Offerings

    Alon Brav and Paul A. Gompers

    In a sample of 2,794 initial public offerings (IPOs), we test three potential explanations for the existence of IPO lockups: lockups serve as (i) a signal of firm quality, (ii) a commitment device to alleviate moral hazard problems, or (iii) a mechanism for underwriters to extract additional compensation from the issuing firm. Our results support the commitment hypothesis. Insiders of firms that are associated with greater potential for moral hazard lockup their shares for a longer period of time. Insiders of firms that have experienced larger excess returns, are backed by venture capitalists, or go public with high-quality underwriters are more likely to be released from the lockup restrictions.

    Keywords: Initial Public Offering; Quality; Moral Sensibility; Compensation and Benefits; Venture Capital; Problems and Challenges; Stock Shares; Going Public;

    Citation:

    Brav, Alon, and Paul A. Gompers. "The Role of Lockups in Initial Public Offerings." Review of Financial Studies 16, no. 1 (Spring 2003). View Details
  9. Corporate Governance and Equity Prices

    Paul A. Gompers, Joy L. Ishii and Andrew Metrick

    Keywords: Corporate Governance; Equity; Price;

    Citation:

    Gompers, Paul A., Joy L. Ishii, and Andrew Metrick. "Corporate Governance and Equity Prices." Quarterly Journal of Economics 118, no. 1 (February 2003). (

    Winner of Geewax, Terker & Company Prize in Investment Research presented by Rodney L. White Center for Financial Research​

    .) View Details
  10. Who Underreacts to Cash-Flow News? Evidence from Trading between Individuals and Institutions

    Randolph B. Cohen, Paul A. Gompers and Tuomo Vuolteenaho

    Keywords: Cash Flow; Trade; Relationships;

    Citation:

    Cohen, Randolph B., Paul A. Gompers, and Tuomo Vuolteenaho. "Who Underreacts to Cash-Flow News? Evidence from Trading between Individuals and Institutions." Special Issue on Limits to Arbitrage Journal of Financial Economics 66, nos. 2-3 (November 2002): 409–462. (Was NBER Working Paper 8793.) View Details
  11. The Use of Covenants: An Empirical Analysis of Venture Partnership Agreements

    Paul A. Gompers and J. Lerner

    Keywords: Partners and Partnerships; Theory; Agreements and Arrangements;

    Citation:

    Gompers, Paul A., and J. Lerner. "The Use of Covenants: An Empirical Analysis of Venture Partnership Agreements." Journal of Law & Economics 39, no. 2 (October 1996): 463–498. (Condensed version reprinted in Investment Policy 1 (September/October 1997): 122-130.) View Details

Book Chapters

  1. Short-Term America Revisited? Boom and Bust in the Venture Capital Industry and the Impact on Innovation

    Josh Lerner and Paul A. Gompers

    This chapter seeks to understand the implications of the recent decline in venture activity for innovation. It argues that the situation may not be as grim as it initially appears. While there are many reasons for believing that on average venture capital has a powerful effect on innovation, the effect is far from uniform. During boom periods, the prevalence of over funding of particular sectors can lead to a sharp decline in the effectiveness of venture funds. While prolonged downturns may eventually lead to good companies going unfounded, many of the dire predictions today seem overstated.

    Keywords: Venture Capital; Innovation and Invention; Business Cycles; Financial Services Industry; United States;

    Citation:

    Lerner, Josh, and Paul A. Gompers. "Short-Term America Revisited? Boom and Bust in the Venture Capital Industry and the Impact on Innovation." In Innovation Policy and the Economy, Volume 3, edited by Adam B. Jaffe, Josh Lerner, and Scott Stern, 1–28. MIT Press, 2003. View Details
  2. The Role of Venture Capitalists in the Acquisition of Private Companies

    Paul A. Gompers and Yuhai Xuan

    Keywords: Venture Capital; Acquisition; Private Ownership;

    Citation:

    Gompers, Paul A., and Yuhai Xuan. "The Role of Venture Capitalists in the Acquisition of Private Companies." In Research Handbook on International Banking and Governance, edited by James Barth, Chen Lin, and Clas Wihlborg. Cheltenham, UK: Edward Elgar Publishing, 2012. View Details
  3. The Determinants of Corporate Venture Capital Success: Organizational Structure, Incentives, and Complementarities

    Paul Gompers and Josh Lerner

    Keywords: Venture Capital; Success; Organizational Structure; Motivation and Incentives; Business Ventures;

    Citation:

    Gompers, Paul, and Josh Lerner. "The Determinants of Corporate Venture Capital Success: Organizational Structure, Incentives, and Complementarities." Chap. 1 in Concentrated Corporate Ownership, edited by Randall Morck, 17–50. National Bureau of Economic Research Conference Report. University of Chicago Press, 2000. View Details
  4. Capital Formation and Investment in Venture Markets: An Assessment of Market Imperfections

    P. Gompers

    Keywords: Capital Markets; Venture Capital; Investment;

    Citation:

    Gompers, P. "Capital Formation and Investment in Venture Markets: An Assessment of Market Imperfections." In The Economic Evaluation of Technological Change, edited by Paul A. Gompers. National Institute of Standards and Technology, 1998. View Details
  5. Resource Allocation, Incentives, and Control: The Importance of Venture Capital in Financing Entrepreneurial Firms

    P. A. Gompers

    Keywords: Venture Capital; Resource Allocation; Motivation and Incentives; Corporate Entrepreneurship; Corporate Governance;

    Citation:

    Gompers, P. A. "Resource Allocation, Incentives, and Control: The Importance of Venture Capital in Financing Entrepreneurial Firms." In Entrepreneurship, SMEs, and the Macroeconomy, edited by Zoltan J. Acs, Bo Carlsson, and Charlie Karlsson. Cambridge University Press, 1997. View Details

Working Papers

  1. Diversity in Innovation

    Paul A. Gompers and Sophie Q. Wang

    In this paper we document the patterns of labor market participation by women and ethnic minorities in venture capital firms and as founders of venture capital-backed startups. We show that from 1990-2016 women have been less than 10% of the entrepreneurial and venture capital labor pool, Hispanics have been around 2%, and African Americans have been less than 1%. This is despite the fact that all three groups have much higher representation in education programs that lead to careers in these sectors as well as having higher representation in other highly-compensated professions. Asians, on the other hand, have much higher representation in the venture capital and entrepreneurial sector than their overall percentages in the labor force. We explore potential supply side explanations including both education attainment as well as relevant prior job experience. We also explore the correlation between diversity and state-level variations. Finally, we discuss how these patterns are consistent with homophily-based hiring and homophily-induced information flows about career choices. We end the paper by discussing areas for future research.

    Keywords: Diversity; Gender; Entrepreneurship; Venture Capital;

    Citation:

    Gompers, Paul A., and Sophie Q. Wang. "Diversity in Innovation." Harvard Business School Working Paper, No. 17-067, January 2017. View Details
  2. How Do Venture Capitalists Make Decisions?

    Paul A. Gompers, William Gornall, Steven N. Kaplan and Ilya A. Strebulaev

    We survey 885 institutional venture capitalists (VCs) at 681 firms to learn how they make decisions across eight areas: deal sourcing, investment selection, valuation, deal structure, post-investment value-added, exits, internal firm organization, and relationships with limited partners. In selecting investments, VCs see the management team as more important than business-related characteristics such as product or technology. They also attribute more of the likelihood of ultimate investment success or failure to the team than to the business. While deal sourcing, deal selection, and post-investment value-added all contribute to value creation, the VCs rate deal selection as the most important of the three. We also explore (and find) differences in practices across industry, stage, geography, and past success. We compare our results to those for CFOs (Graham and Harvey 2001) and private equity investors (Gompers, Kaplan, and Mukharlyamov forthcoming).

    Keywords: Venture Capital; Decision Choices and Conditions;

    Citation:

    Gompers, Paul A., William Gornall, Steven N. Kaplan, and Ilya A. Strebulaev. "How Do Venture Capitalists Make Decisions?" NBER Working Paper Series, No. 22587, September 2016. View Details
  3. What Do Private Equity Firms Say They Do?

    Paul A. Gompers, Steven N. Kaplan and Vladimir Mukharlyamov

    We survey 79 private equity investors with combined assets under management (AUM) of over $750 billion about their practices in firm valuation, capital structure, governance, and value creation. Investors rely primarily on internal rate of return (IRR) and multiples to evaluate investments. Their limited partners (LPs) focus more on absolute performance. Capital structure choice is based equally on optimal trade-off and market timing considerations. PE investors anticipate adding value to portfolio companies, with a greater focus on increasing growth than on reducing costs. We also explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.

    Keywords: Governance; Value Creation; Private Equity; Capital Structure; Valuation; Management Practices and Processes;

    Citation:

    Gompers, Paul A., Steven N. Kaplan, and Vladimir Mukharlyamov. "What Do Private Equity Firms Say They Do?" Harvard Business School Working Paper, No. 15-081, April 2015. View Details
  4. The Cost of Friendship

    Paul A. Gompers, Vladimir Mukharlyamov and Yuhai Xuan

    We investigate how personal characteristics affect people's desire to collaborate and whether this attraction enhances or detracts from performance in venture capital. We find that venture capitalists who share the same ethnic, educational, or career background are more likely to syndicate with each other. This homophily reduces the probability of investment success, and the detrimental effect is most prominent for early-stage investments. A variety of tests show that the cost of affinity is most likely attributable to poor decision making by high-affinity syndicates after the investment is made. These results suggest that "birds-of-a-feather-flock-together" effects in collaboration can be costly.

    Keywords: Venture Capital; Partners and Partnerships; Decision Making; Identity;

    Citation:

    Gompers, Paul A., Vladimir Mukharlyamov, and Yuhai Xuan. "The Cost of Friendship." Working Paper, 2014. View Details
  5. The Cost of Friendship

    Paul A. Gompers, Yuhai Xuan and Vladimir Mukharlyamov

    This paper explores two broad questions on collaboration between individuals. First, we investigate what personal characteristics affect people's desire to work together. Second, given the influence of these personal characteristics, we analyze whether this attraction enhances or detracts from performance. Addressing these problems in the venture capital syndication setting, we show that venture capitalists exhibit strong detrimental homophily in their co-investment decisions. We find that individual venture capitalists choose to collaborate with other venture capitalists for both ability-based characteristics (e.g., whether both individuals in a dyad obtained a degree from a top university) and affinity-based characteristics (e.g., whether individuals in a pair share the same ethnic background, attended the same school, or worked for the same employer previously). Moreover, frequent collaborators in syndication are those venture capitalists who display a high level of mutual affinity. We find that while collaborating for ability-based characteristics enhances investment performance, collaborating for affinity-based characteristics dramatically reduces the probability of investment success. A variety of tests show that the cost of affinity is not driven by selection into inferior deals; the effect is most likely attributable to poor decision-making by high-affinity syndicates post investment. Taken together, our results suggest that non-ability-based "birds-of-a-feather-flock-together" effects in collaboration can be costly.

    Keywords: Partners and Partnerships; Investment; Performance; Personal Characteristics;

    Citation:

    Gompers, Paul A., Yuhai Xuan, and Vladimir Mukharlyamov. "The Cost of Friendship." NBER Working Paper Series, No. 18141, June 2012. View Details

Other Publications and Materials

  1. Bridge Building in Venture Capital-Backed Acquisitions

    Paul A. Gompers and Yuhai Xuan

    We study the role of common venture capital investors in alleviating asymmetric information between public acquirers and private venture capital-backed targets. We find that acquisition announcement returns are more positive for acquisitions in which both the target and the acquirer are financed by the same venture capital firm. Similarly, having a common investor increases the likelihood that a transaction will be all equity-financed and the likelihood that an acquisition will take place. Our results suggest that common venture capital investors can form a bridge between acquiring and target firms that reduces asymmetric information associated with the transaction for both parties.

    Keywords: Mergers and Acquisitions; Venture Capital; Private Equity; Knowledge Sharing; Market Transactions;

    Citation:

    Gompers, Paul A., and Yuhai Xuan. "Bridge Building in Venture Capital-Backed Acquisitions." 2009. View Details
  2. Executive Ownership and Control in Newly Public Firms: The Role of Venture Capitalists

    Malcolm Baker and Paul Gompers

    We study the implications of CEO equity ownership for incentives and control in a sample of 1,011 newly public firms. Before an initial public offering, equity investments by venture capitalists reduce CEO ownership by about half, from an average of 35 percent to 19 percent. Venture capitalists narrow this difference by granting options, reducing secondary sales, and lowering the dilution by primary shares, but a gap in post-IPO CEO equity ownership remains. The effect of this lower ownership on incentives depends upon the measure employed - the dollar sensitivity of CEO pay to firm value is lower in venture firms, but the elasticity is about the same. In addition, we present evidence that lower ownership, combined with concentrated outside holdings, leads to a reduction in the agency costs of managerial control. We conclude that the patterns of ownership in part represent a tradeoff by venture capitalists between the benefits of incentives and the agency costs of control.

    Keywords: Equity; Ownership; Motivation and Incentives; Initial Public Offering; Investment; Venture Capital; Managerial Roles; Cost Management; Governance Controls; Executive Compensation;

    Citation:

    Baker, Malcolm, and Paul Gompers. "Executive Ownership and Control in Newly Public Firms: The Role of Venture Capitalists." November 1999. (First draft in 1998.) View Details