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Publications
  • November 2013
  • Article
  • Journal of Financial Economics

Investment Cycles and Startup Innovation

By: Ramana Nanda and Matthew Rhodes-Kropf
  • Format:Print
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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 true even 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, and more novel, investments.

Keywords

Innovation; Market Cycles; Financing Risk; Risk and Uncertainty; Venture Capital; Investment; Innovation and Invention

Citation

Nanda, Ramana, and Matthew Rhodes-Kropf. "Investment Cycles and Startup Innovation." Journal of Financial Economics 110, no. 2 (November 2013): 403–418.
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About The Author

Ramana Nanda

Entrepreneurial Management
→More Publications

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    • September 2022
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    House Prices, Home Equity and Entrepreneurship: Evidence from U.S. Census Micro Data

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    Financing Constraints, Home Equity and Selection into Entrepreneurship

    By: Thais Laerkholm Jensen, Søren Leth-Petersen and Ramana Nanda
More from the Authors
  • House Prices, Home Equity and Entrepreneurship: Evidence from U.S. Census Micro Data By: Sari Pekkala Kerr, William R. Kerr and Ramana Nanda
  • Are Transformational Ideas Harder to Fund? Resource Allocation to R&D Projects at a Global Pharmaceutical Firm By: Joshua Krieger and Ramana Nanda
  • Financing Constraints, Home Equity and Selection into Entrepreneurship By: Thais Laerkholm Jensen, Søren Leth-Petersen and Ramana Nanda
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