Periodic Reporting for period 3 - Financing_Entrep (Financing Frictions in High-Potential Entrepreneurship)
Okres sprawozdawczy: 2023-07-01 do 2024-12-31
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.
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.
My research on understanding frictions in venture capital (VC) finance has progressed on several fronts. One set of projects examines the implications of settings where success is driven by extreme outliers that are hard to predict: how do investors select between different potential investments and does this conform to the best way to do so? I have three papers under development here, with two papers soon to be developed into a discussion papers and submitted for publication, with a third being developed into a discussion paper by the end of year. Another examines the particular challenges associated with VCs financing science-based ‘deep tech’ ventures, and the implications this has for the ideas that are commercialized through startups. This should be developed into a discussion paper by the end of the year.
My research looking more broadly at financing and firm dynamics has not yet advanced as quickly due to the need matching panel data on firm entry, exit and employment (available in Census-level datasets) with data on firm financing, to enable a unique data platform that to jointly study firm financing and firm dynamics for the fist time. The goal of this effort is to understand the sources of financing and related frictions for firms that display a strong up-or-out dynamic.
My research looking more broadly at financing and firm dynamics has not yet advanced as quickly due to the need matching panel data on firm entry, exit and employment (available in Census-level datasets) with data on firm financing, to enable a unique data platform that to jointly study firm financing and firm dynamics for the fist time. The goal of this effort is to understand the sources of financing and related frictions for firms that display a strong up-or-out dynamic.
Studying the efficacy of investment decisions in setting where a few outliers drive returns (so called power-law distributions) requires new theoretical and empirical methods that have been developed in the set of papers studying VC decision making. Two of my projects will expand the state of the art in this area with an application to venture capital.
Jointly studying firm financing and firm dynamics requires developing a first-of-a-kind panel data on firm dynamics matched to firm financing. This dataset will lie within the Office of National Statistics in the UK, so will be available to other researchers interested in building on this research.
Jointly studying firm financing and firm dynamics requires developing a first-of-a-kind panel data on firm dynamics matched to firm financing. This dataset will lie within the Office of National Statistics in the UK, so will be available to other researchers interested in building on this research.