Investment cycles and startup innovation
By: Ramana Nanda, Matthew Rhodes-Kropf
Contributors: Rhodes-Kropf, Matthew; Harvard Business School
Series: Working paper / Harvard Business School -- 12-032; Working paper (Harvard Business School) -- 12-032
Publisher: Harvard Business School
Published: 2011
Place of publication: Boston]
Language: eng
Number of pages: 31
Description: We find that VC-backed firms receiving their initial investment in hot markets are less likely to IPO, 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, more novel, investments.
Notes: "October 2011" -- Publisher's website.

Includes bibliographical references.