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• Article | Journal of Financial Economics | June 2018

  Cost of Experimentation and the Evolution of Venture Capital

  Michael Ewens, Ramana Nanda and Matthew Rhodes-Kropf

  We study how technological shocks to the cost of starting new businesses have led the venture capital model to adapt in fundamental ways over the prior decade. We both document and provide a framework to understand the changes in the investment strategy of VCs in recent years—an increased prevalence of a "spray and pray" investment approach—where investors provide a little funding and limited governance to an increased number of startups that they are more likely to abandon, but where initial experiments significantly inform beliefs about the future potential of the venture. This adaptation and related entry by new financial intermediaries has led to a disproportionate rise in innovations where information on future prospects is revealed quickly and cheaply and has reduced the relative share of innovation in complex technologies where initial experiments cost more and reveal less.

  Keywords: innovation; venture capital; Investing; abandonment option; Technological Innovation; Venture Capital; Investment;

  Citation:

  Ewens, Michael, Ramana Nanda, and Matthew Rhodes-Kropf. "Cost of Experimentation and the Evolution of Venture Capital." Journal of Financial Economics 128, no. 3 (June 2018): 422–442.  View Details

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• Working Paper | HBS Working Paper Series | 2018

  Private Equity, Jobs, and Productivity: Reply to Ayash and Rastad

  Steven J. Davis, John Haltiwanger, Kyle Handley, Ron S. Jarmin, Josh Lerner and Javier Miranda

  Ayash and Rastad (2017) express several concerns about our 2014 analysis of private equity buyouts. We welcome their interest in our work but think their criticisms are off the mark. Some of their claims reflect a misunderstanding of the Census Bureau’s Longitudinal Business Database (LBD) and its underlying data inputs. Because the LBD has emerged as a major laboratory for empirical studies in economics and finance, we use this opportunity to reiterate and clarify some of its important features. In a similar spirit, we elaborate on steps taken to develop our large sample of private equity buyouts. We also address Ayash and Rastad’s remarks about the empirical design of our establishment-level analysis, our methods for distinguishing between leveraged buyouts (LBOs) and other private equity transactions, bankruptcy rates among firms acquired in LBOs, their assertion that we undercount large public-to-private LBOs, and other matters.

  Keywords: Private Equity; Leveraged Buyouts; Jobs and Positions; Performance Productivity;

  Citation:

  Davis, Steven J., John Haltiwanger, Kyle Handley, Ron S. Jarmin, Josh Lerner, and Javier Miranda. "Private Equity, Jobs, and Productivity: Reply to Ayash and Rastad." Harvard Business School Working Paper, No. 18-074, January 2018.  View Details

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• Article | Journal of Financial Economics | January 2018

  The Globalization of Angel Investments: Evidence Across Countries

  Josh Lerner, Antoinette Schoar, Stanislav Sokolinski and Karen Wilson

  This paper examines investments made by 13 angel groups across 21 countries. We compare applicants just above and below the funding cutoff and find that these angel investors have a positive impact on the growth, performance, and survival of firms as well as their follow-on fundraising. The positive impact of angel financing is independent of the level of venture activity and entrepreneur friendliness in the country. However, we find that the development stage and maturity of startups that apply for angel funding (and those that are ultimately funded) is inversely correlated with the entrepreneurship friendliness of the country, which may reflect self-censoring by very early stage firms that do not expect to receive funding in these environments.

  Keywords: Entrepreneurship; Globalization; Investment; Business Startups;

  Citation:

  Lerner, Josh, Antoinette Schoar, Stanislav Sokolinski, and Karen Wilson. "The Globalization of Angel Investments: Evidence Across Countries." Journal of Financial Economics 127, no. 1 (January 2018): 1–20.  View Details

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