More from these Authors

• Working Paper | HBS Working Paper Series | 2020

  The Evolution of CEO Compensation in Venture Capital Backed Startups

  Michael Ewens, Ramana Nanda and Christopher Stanton

  We use individual-level data to shed light on the evolution of founder-CEO compensation in venture capital-backed startups. We document that having a tangible, marketable product is a fundamental milestone in CEOs’ compensation contracts, marking the point at which liquid cash compensation begins to increase significantly – well before a liquidity event. “Product market fit” also coincides with key human capital in the startup becoming more replaceable, marking an apparent transition in the firm's lifecycle from ‘differentiation’ to ‘standardization’. Although substantial increases in cash compensation for founder-CEOs in response to milestones improves the certainty equivalent of attempting entrepreneurship relative to flat pay, low cash compensation in the very early years can still deter entrepreneurship for potential entrants. We characterize the types of individuals most likely to be impacted by this constraint and hence those whose ideas are unlikely to be commercialized through VC-backed entrepreneurship.

  Keywords: entrepreneurship; venture capital; Executive Compensation;

  Citation:

  Ewens, Michael, Ramana Nanda, and Christopher Stanton. "The Evolution of CEO Compensation in Venture Capital Backed Startups." Harvard Business School Working Paper, No. 20-119, May 2020.  View Details

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• Working Paper | HBS Working Paper Series | 2020

  Financial Distancing: How Venture Capital Follows the Economy Down and Curtails Innovation

  Sabrina T. Howell, Josh Lerner, Ramana Nanda and Richard Townsend

  Although late-stage venture capital (VC) activity did not change dramatically in the first two months after the COVID-19 pandemic reached the U.S., early-stage VC activity declined by 38%. The particular sensitivity of early-stage VC investment to market conditions—which we show to be common across recessions spanning four decades from 1976 to 2017—raises questions about the pro-cyclicality of VC and its implications for innovation, especially in light of the common narrative that VC is relatively insulated from public markets. We find that the implications for innovation are not benign: innovation conducted by VC-backed firms in recessions is less highly cited, less original, less general, and less closely related to fundamental science. These effects are more pronounced for startups financed by early-stage venture funds. Given the important role that VC plays in financing breakthrough innovations in the economy, our findings have implications for the broader discussion on the nature of innovation across business cycles.

  Keywords: innovation; recessions; Venture Capital; Innovation and Invention; Patents; Business Cycles; Economic Slowdown and Stagnation;

  Citation:

  Howell, Sabrina T., Josh Lerner, Ramana Nanda, and Richard Townsend. "Financial Distancing: How Venture Capital Follows the Economy Down and Curtails Innovation." Harvard Business School Working Paper, No. 20-115, May 2020.  View Details

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• Case | HBS Case Collection | February 2020 (Revised March 2020)

  Prime Coalition: Catalytic Capital for Climate Innovation

  Ramana Nanda, Benjamin N. Roth and Olivia Hull

  With long development timelines and high risk, new energy technologies were often left to languish in the “valley of death,” unable to raise enough funds to bring a product to market. In 2014, Sarah Kearney founded the nonprofit Prime Coalition to solve this problem. At the beginning, Prime’s role as a financial intermediary involved seeking out the most promising market-based technology solutions to climate change and recruiting foundations or philanthropists to fund them. In 2019, Prime changed course, adopting a portfolio approach with its Prime Impact Fund. By the end of the year, Prime had raised $40 million in philanthropic capital for its new fund. Once the funds were invested in promising energy startups, Prime planned to try its hand at recruiting traditional investors to back the same companies. Could Kearney convince traditional investors that these investments were worth the risks?

  Keywords: Energy Conservation; Renewable Energy; Social Entrepreneurship; Venture Capital; Investment; Innovation and Invention; Technological Innovation; Mission and Purpose; Science-Based Business; Nonprofit Organizations; Social Enterprise; Energy Industry; Technology Industry; Green Technology Industry; United States;

  Citation:

  Nanda, Ramana, Benjamin N. Roth, and Olivia Hull. "Prime Coalition: Catalytic Capital for Climate Innovation." Harvard Business School Case 820-007, February 2020. (Revised March 2020.)  View Details

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