Entrepreneurship is a key driver of productivity growth, both as a vehicle through which radical new technologies are commercialized, and through firm dynamics associated with the Schumpeterian process of ‘creative destruction’ (Aghion and Howitt, 1992; Akcigit and Kerr, 2018; Acemoglu et al, 2018). Recent research has begun to highlight that a disproportionate share of productivity growth is driven by a relatively small group of high potential entrepreneurs whose success seems hard to predict at the time of entry. These high potential firms exhibit a strong ‘up-or-out’ dynamic – they are more likely to fail, but if they survive tend to be extremely successful, create jobs and innovate (Foster, Haltiwanger and Syverson, 2008; Decker et al, 2014).
These patterns are consistent with high growth entrepreneurship being conceptualized as a process of experimentation, which has implications for how to study, and to evaluate potential financing frictions for entrepreneurs. For example, the goal of financiers and policy makers may not necessarily be to reduce firm failure, but to identify groups of high potential firms so as to create a financing environment that enables the experimentation that they need to realize their potential (Kerr, Nanda and Rhodes-Kropf, 2014).
My research aims to provide a deeper understand financing frictions facing potential entrepreneurs when viewed through this experimentation lens. One strand aims to study how the financing environment for new ventures impacts firm dynamics such as entry, exit and growth, and how this in turn impacts macro-economic indicators of interest. A second strand looks more closely at how venture capital investors select as well as finance the learning and experimentation related to commercializing new technologies, with an eye towards understanding frictions in this process that might impact the direction of innovation.
