Essays On Entrepreneurial Finance
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Essays On Entrepreneurial Finance And Venture Capital
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Author : Sungjoung Kwon
language : en
Publisher:
Release Date : 2020
Essays On Entrepreneurial Finance And Venture Capital written by Sungjoung Kwon and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with Entrepreneurship categories.
In the first essay, I examine what motivates young startup firms to rely on external intellectual property rights. While startups are better suited to exploration than exploitation, I find that approximately 10% of VC-backed companies acquire external patents while still private. They are neither low-quality firms nor firms with low patent output, lending little support to the hypothesis that patent acquisition is a response to low productivity. Rather, patent litigation risk appears to play an important role. Startup firms are significantly more likely to buy external patents when they are sued for patent infringement or exposed to a high threat of litigation. Using a difference-in-differences design around the Supreme Court decision Alice Corp. vs. CLS Bank, I show that firms whose patent litigation risks are reduced the most become significantly less likely to buy patents. Consistent with these findings and with the litigation risk preventing firms from reaching their full potential, firms buying patents are significantly less likely to go public. The second essay (with Michelle Lowry and Yiming Qian) examines mutual fund investments in private firms. Historically, a key advantage of being a public firm was broader access to capital, from a disperse group of shareholders. In recent years, such capital has increasingly become available to private firms as well. We document a dramatic increase over the past twenty years in the number of mutual funds participating in private markets and in the dollar value of these private firm investments. We evaluate several factors that potentially contribute to this trend: firms seeking extra capital to postpone public listing, mutual funds seeking higher risk-adjusted returns and initial public offering (IPO) allocations, and venture capitalists (VCs) seeking new investors to substantiate higher valuations. Results provide the strongest support for the first two factors. The final essay explores potential conflicts of interest in venture capital investments. VC firms occasionally make investments in startups founded by their own employees. The agency hypothesis predicts that this practice is motivated by conflicts of interest-VCs pursue their private benefits by financing themselves or coworkers. Alternatively, the information hypothesis posits that VCs are utilizing their networks-the connection with founders enable VCs to better evaluate the prospects of the venture. Using historical employment data in Crunchbase, I identify connections between entrepreneurs and VC firms. My findings provide strong support for the information hypothesis. Startups raising financing from connected VCs outperform their peers in the long run. VCs exhibit superior investment performance from connected deals, and these deals generate higher demand from other VCs as well. Finally, VCs making investments in connected startups are better able to raise follow-on funds. In sum, my findings suggest that, in the venture capital industry, private benefits from self-dealing is not sufficient enough to outweigh reputation concerns and/or the potential financial compensation from investing in better companies.
Essays In Entrepreneurial Finance
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Author : Roy Kenneth Roth
language : en
Publisher:
Release Date : 2019
Essays In Entrepreneurial Finance written by Roy Kenneth Roth and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
In this dissertation, I study how the structure and conventions of the venture capital market affect the behavior of both investors and entrepreneurs. The venture capital market is characterized by high-risk investments with the potential for extreme rewards. The current structure and conventions of the market have developed at least in part to mitigate the level of risk faced by the investors. Characteristics of the market include convertible preferred securities, staged investment and board representation for investors among other features. In the first chapter of this dissertation, I study the effects of stage financing on effort provision and firm value, weighing the advantages of upfront financing against the incentive to misuse the capital for personal reasons. In the second chapter, I study how the use of convertible preferred securities and board representation affect the level of risk chosen by venture capital-backed firms. Both chapters primarily deal with the market structure as given, thus, the focus of this dissertation is on understanding the effects of the current market structure on real decision-making, rather than providing justification for observed conventions. In so doing, I uncover insights not previously available and meaningfully contribute to the existing literature. In the first chapter, I explore the optimal staging path for venture capital-backed companies. Staging investment allows a portion of the risk inherent to financing new ventures to be mitigated, as some portion of the needed funds can be withheld until after initial progress is realized. As a result, companies that show poor intermediate signals can be abandoned, saving investors from likely losses. Additionally, despite investors' representation on the board of directors, some misbehavior by the entrepreneur may not be preventable ex-post. Hence, there is value in limiting the amount of capital that the entrepreneur has access to while the firm is young and opaque, as this limits the amount that can be misused. These factors create a motive for stage financing. However, providing a larger amount of capital upfront can also provide flexibility and operational efficiencies that increase the potential value of the project. Weighing these effects against each other leads to an internal optimum level of staging, where some capital is provided upfront but a portion is withheld until further information is revealed and the firm matures. The entrepreneur's preferred level of capital raised initially exceeds the level that maximizes the value of the firm. I further explore how the solution changes when the entrepreneur disagrees with investors over the likely value of the project. Specifically, I study how the solution is affected when the entrepreneur is more optimistic about the distribution of project outcomes than are investors. This creates two separate effects that oppose each other. On one hand, optimistic entrepreneurs are less likely to misbehave and waste capital, lowering the cost of providing capital upfront and increasing the optimal amount raised initially. On the other hand, optimists believe that the price they can get for their equity will be higher in the future, increasing the perceived cost of upfront financing and decreasing its optimal level. I illustrate that in low information settings the former effect dominates while in high information settings the latter dominates. These findings provide insight into the staging decision not previously available. In Chapter 2 I focus on the incentives for risk-taking facing both entrepreneurs and investors. In venture capital financing, investors take convertible preferred stock which is senior to the common stock held by the entrepreneurs. Traditional economic logic would then imply that the entrepreneur has a stronger incentive for risk-taking than does the investor, by virtue of the security design. However, I show that this is not always the case. I explore how the incentives of the decision-making investors, the general partners of venture capital funds, are affected by the fact that they manage funds of other peoples money. Hence, their compensation profile is not linearly related to fund value. In particular, general partners are compensated with a mixture of fixed and performance sensitive income. I show that the performance sensitive component, carried interest, introduces a kink into the payoffs of the general partners which induces a preference for risky strategies in certain situations. My model predicts two key scenarios where, despite holding a senior security, general partners are more risk-seeking than entrepreneurs. First, general partners are risk-seeking late in the life cycle of their funds if prior performance has been poor. This is similar to the "gambling for resurrection'' effect in firms near default. Furthermore, in many cases, the possibility of future poor performance is sufficient to induce the GP to prefer high-risk strategies even early in the life of the fund, before intermediate progress has been realized. These findings are empirically relevant and shed light on which parties are the driving forces behind the level of risk selected by startup firms.
Essays On Entrepreneurial Finance
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Author : Darwin Victor Neher
language : en
Publisher: Ann Arbor, Mich. : University Microfilms International
Release Date : 1994
Essays On Entrepreneurial Finance written by Darwin Victor Neher and has been published by Ann Arbor, Mich. : University Microfilms International this book supported file pdf, txt, epub, kindle and other format this book has been release on 1994 with Venture capital categories.
Essays In Entrepreneurial Finance
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Author : Ramana Nanda
language : en
Publisher:
Release Date : 2007
Essays In Entrepreneurial Finance written by Ramana Nanda and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
There is growing belief that countries with better financing environments are associated with higher economic growth because they facilitate entrepreneurship and hence the Schumpeterian process of 'creative destruction'. This dissertation explores this hypothesis in more detail by understanding how the financing environment for new ventures impacts outcomes such as individuals' decision to become entrepreneurs, their sources of financing and the growth and survival of their firms. Rather than performing cross-country analyses however, the approach used in this dissertation is to perform within-country studies that shed more light on the mechanisms through which the financing environment impacts entrepreneurial activity. The first two essays in the dissertation exploit institutional reforms - one in Denmark and another in the US - that changed the financing environment for new businesses to study how they impacted individuals' entry and survival. These natural experiments are supplemented with detailed and comprehensive micro data that allow me to both explore and the refine the mechanisms at play in more detail. The final paper is more descriptive in nature and examines how the variation in entrepreneurs' use of Diaspora networks in developing countries is related to the financing and networking environment of the city in which they are based.
Three Essays On Entrepreneurial Finance
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Author : Moein Karami
language : en
Publisher:
Release Date : 2021
Three Essays On Entrepreneurial Finance written by Moein Karami and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with categories.
This dissertation aims to shed light on dynamics of new forms of entrepreneurial finance, in general, and crowdfunding, in particular, from three different following aspects. First, we conduct an exhaustive search of all media reports on Kickstarter campaign fraud allegations from 2010 through 2015, and determine campaign features that are associated with a higher probability of observing fraud, using multiple matched samples of non-fraudulent campaigns. We also document the short-term negative consequence of possible breaches of trust in the market, using a sample of more than 270,000 crowdfunding campaigns posted from 2010 through 2018 on Kickstarter. Our results show that crowdfunding projects launched around a significant misconduct detection on Kickstarter tend to have a lower probability of success, raise less funds, and attract fewer backers. Second, using a sample of 230,255 crowdfunding campaigns (2013-2018) on Kickstarter and drawing upon previous empirical evidence, the statistically significant effect of five variables on campaign success is documented. To date, numerous studies have focused on determining factors affecting crowdfunding success, however, it is extremely difficult to compare results across papers as each use incompatible specifications, and different control variables. The identified variables aim to measure the intensity of competition, creator's crowdfunding experience, project quality & creator confidence, portal recognition, and project size. Furthermore, the effect of campaign creator's citizenship, as well as project location, on funding success is investigated. Third, and drawing upon previous findings on the effect of biological factors on investment behavior and entrepreneurship, a significant positive relationship between fWHR (facial Width-to-Height Ratio) of the hedge fund managers in the sample (1994-2016) and fund's risk is documented. The association between facial masculinity of male entrepreneurs and their fund-raising outcome is also investigated using a sample of ABC channel's "Shark Tank" show (2009-2014). The results are in line with previous findings on the positive correlation between fWHR and testosterone; a hormone which its role in describing behavioral patterns such as competitiveness and risk-taking is well-established. The study sheds light on the factors that are not incorporated in economic models, but may significantly affect financial risk-taking and performance, as well as entrepreneurial outcomes.
Essays In Entrepreneurial Finance
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Author : Kathrin Rennertseder
language : en
Publisher:
Release Date : 2023
Essays In Entrepreneurial Finance written by Kathrin Rennertseder and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023 with categories.
Essays On Entrepreneurial Finance
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Author : Oliver Mäschle
language : en
Publisher:
Release Date : 2013
Essays On Entrepreneurial Finance written by Oliver Mäschle and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
Essays On Entrepreneurial Finance
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Author : Dan H. Vo
language : en
Publisher:
Release Date : 2013
Essays On Entrepreneurial Finance written by Dan H. Vo and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
In many developed countries angel capital investment is the main source of external financing for high growth early-stage entrepreneurial companies. In spite of its importance, research in the angel capital market is still very limited. This is partly due the fact that data on angel capital investment is rare and unsystematic. This dissertation attempts to learn more about this important but not well-understood angel capital market. In particular, the first essay looks at the relationship between angels and venture capitalists in financing start-up ventures. This essay juxtaposes a complements hypothesis--angel financing is a springboard for venture capital, against a substitutes hypothesis--angels and venture capital are distinct financing methods that ought not to be combined. The result shows that companies that obtain angel financing subsequently obtain less venture capital, and vice versa. On average venture capitalist make larger investments, but this alone cannot explain the substitutes pattern. In addition, this essay reports that companies funded by venture capital perform better than angel backed companies, as measured by successful exits or revenues. Mixing angel and venture capital funding tends to be associated with worse performance. The second essay studies the role of geographic distance between the angel investors and the investee companies on the angel investment performance. This essay conjectures four possible channels that can explain the relationship between distance and the return to angel investment. It shows that distance has a positive relationship with the return to angel investment. Examining the effect of distance across different categories of angel investors, across angel investor's locations, and across company's location, this essay finds evidence that this positive relationship is mainly driven by the "objectivity effect", which suggests that distant investors can evaluate the prospect of a company more objectively than close-by investors, who tend to be more biased in their judgments. The third essay examines why entrepreneurs find it generally hard to find angel investors. This essay modifies the standard search model introduced by Pissarides to explain this phenomenon. In this model, angels hide to force entrepreneurs to engage in a costly search. The result shows that angel investors adopt the hiding strategy to screen out low-productivity entrepreneurs who would otherwise inundate angels. Interestingly, social surplus is often increased when angels hide, though in some circumstances surplus may fall.
Essays On Entrepreneurial Finance
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Author : Jacek Piosik
language : en
Publisher:
Release Date : 2023
Essays On Entrepreneurial Finance written by Jacek Piosik and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023 with categories.
Three Essays On Entrepreneurial Finance
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Author : Jialong Li
language : en
Publisher:
Release Date : 2016
Three Essays On Entrepreneurial Finance written by Jialong Li and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
This dissertation consists of three essays that explore different areas within the framework of entrepreneurial finance. In my first essay, I investigate the relation between corporate financial distress and earnings management in politically-affiliated private firms in China. I further examine the joint moderating effects of political affiliation and regional development on this relation. The findings suggest that financially-distressed firms engage more in reporting small positive earnings relative to financially-healthy firms. In addition, political affiliation weakens the association between financial distress and small positive earnings management. In the second essay, I intend to shed light on social performance of microfinance institutions (MFIs) with respect to gender equality in MFIs' outreach and promotion of entrepreneurship. Rooted in the principles of homophily and risk aversion, I pinpoint a novel topic which is the association between female leadership in MFIs and their services targeting women clients, and find that when more women serve as managers, board members, and/or loan officers in MFIs, the MFIs increase their outreach to women due to gender affinity. Applying the institutional theory, I also analyze the relationship between MFI's outreach to female borrowers and entrepreneurship in an international setting, and highlight the moderating role played by legal environment in this relationship. Findings indicate that in countries with stronger legal environment, women are more inclined to enter entrepreneurship. In my last essay, I turn to look at family firm, which is perceived to behave quite differently compared with non-family firm. From socioemotional wealth preservation and board experience perspectives, I compile a sample of family-owned and -managed firms on the Standard and Poor's (S&P) 500 Index and examine the effect of family involvement on firm internationalization. The results show that the presence of a family member chairing the board impedes internationalization, but that this negative effect is reduced when board members are highly experienced. I also find that the involvement of multiple generations in the business contributes to the firm's internationalization, and that this effect is more pronounced when firms internationalize to geographically distant rather than closer regions. The contributions and implications of this study are also discussed.