The DI builds community and expertise around the digital transformation of the economy at HBS and beyond through curated content, facilitated exchange, and thought leadership.
America's infrastructure woes and how to fix them were front and center at the recent summit, America on the Move: Transportation and Infrastructure for the 21st Century, led by Rosabeth Moss Kanter.
TOM Seminar: Does Crowdfunding Benefit Entrepreneurs and Venture Capital Investors?
Abstract:
We study how a new form of entrepreneurial finance - crowdfunding - interacts with more traditional financing sources, such as venture capital (VC) and bank financing. We model a multi-stage bargaining game, with a moral-hazard problem between entrepreneurs and banks, and a double-sided moral-hazard problem between entrepreneurs and VCs. We decompose the economic value of crowdfunding into cash gains or losses, costs of bad investments avoided, and project-payoff probability update. This economic value is generally shared between entrepreneurs and VC investors, benefiting both. However, successful crowdfunding can also harm the entrepreneur and the VC by i) exacerbating moral hazard and ii) intensifying investor competition which reduces value to VC investors, who may walk away from the deal entirely. This can hurt entrepreneurs who lose out on valuable VCs' operational expertise (operational support, access to supplier networks, etc.). The model provides a theoretical underpinning for recent empirical observations that some projects lose VC financing after successful crowdfunding campaigns. Our results complement earlier studies by demonstrating that the entrepreneurs' objectives are more complex than simply maximizing the payoffs from crowdfunding campaigns.
November
14, 2019
|
12:30pm -
2:00pm
| Baker Library | Bloomberg Center 102
| Harvard Business School faculty and doctoral students only
Organizer: Technology & Operations Management Unit
