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Author : 王瑞琳
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (14 download)
Download or read book Essays on Venture Capital and Firm Growth written by 王瑞琳 and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Tom Nicholas
Publisher : Harvard University Press
ISBN 13 : 0674988000
Total Pages : 401 pages
Book Rating : 4.6/5 (749 download)
Download or read book VC written by Tom Nicholas and published by Harvard University Press. This book was released on 2019-06-03 with total page 401 pages. Available in PDF, EPUB and Kindle. Book excerpt: From nineteenth-century whaling to a multitude of firms pursuing entrepreneurial finance today, venture finance reflects a deep-seated tradition in the deployment of risk capital in the United States. Tom Nicholas’s history of the venture capital industry offers a roller coaster ride through America’s ongoing pursuit of financial gain.
Author : Sungjoung Kwon
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (135 download)
Download or read book Essays on Entrepreneurial Finance and Venture Capital written by Sungjoung Kwon and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Author : Arash Soleimani Dahaj
Publisher :
ISBN 13 :
Total Pages : 150 pages
Book Rating : 4.:/5 (13 download)
Download or read book Essays on International Venture Capital written by Arash Soleimani Dahaj and published by . This book was released on 2017 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: Venture Capital firms (VCs), compared with other sources of financing, are known to be a value-adding source of finance for high-growth entrepreneurial firms. Venture capital has transitioned from a local to an international subject in recent years. In this thesis , I address three important aspects of the international venture capital research area. In the first essay, I answer these questions: do venture capital firms decide to invest in a cross-border company based solely on their own international experience, or do they also decide based on other venture capital firms' behaviour in investing in that country? I address these questions by investigating vicarious and experiential learning in the venture capital context, focusing on US cross-border venture capital investment data from 2000 to 2013. The analysis indicates that, on average, venture capital firms use both experiential and vicarious learning strategies in making their cross-border investment decisions. Moreover, the effect of experiential learning is greater than that of vicarious learning, and a venture capital firm's size moderates this effect. In the second essay, I answer this question: do government venture capital funds crowd-in or crowd-out international private venture capital investment? The crowding-in effect arises when international private venture capital benefits from government subsidies through the enhancement of an entrepreneurial ecosystem and investment syndication. The crowding-out effect arises when government venture capital competes with private venture capital, bidding up deal prices and lowering returns, thereby spurring local private venture capitalists to invest internationally. I examine data from 26 countries from 1998 to 2013. The analysis indicates that, on average, more mixed-structured government venture capital investments than pure-structured government investments in a country crowds-in domestic and foreign private venture capitalists internationally. Moreover, the effect of both structures is greater on domestic private venture capitalists than on foreign ones. In the third essay, I investigate whether government venture capital practices in Canada promote a robust entrepreneurial ecosystem, by analyzing the effect of these practices on domestic and cross-border venture capital investments by private venture capital firms separately. I research the following two questions in parallel: a) Does Canadian government venture capital investment attract private venture capital firms to invest in the domestic market? b) Does Canadian government venture capital investment lead to, or prevent, domestic private venture capital firms from investing in other countries? I find that Canadian government venture capital investment has no measurable impact on private venture capital firms' decisions to invest in the domestic market. I also find that certain of the Canadian government's venture capital programs have displaced private venture capital, although with negligible impact, towards cross-border VC markets, primarily to the United States.
Author : Pengfei Han
Publisher :
ISBN 13 :
Total Pages : 226 pages
Book Rating : 4.:/5 (129 download)
Download or read book Essays on Economic Growth and the Economics of Innovation written by Pengfei Han and published by . This book was released on 2018 with total page 226 pages. Available in PDF, EPUB and Kindle. Book excerpt: In my dissertation, I study how legal institutions and financial system affect innovation and their impact on economic growth. This dissertation consists of two chapters. The themes of chapter 1 and 2 are intellectual property rights and the venture capital system, respectively. Chapter 1 studies the impact of intellectual property rights on the business scope of firms. Stronger intellectual property rights induce specialization and contribute to economic growth. In the United States, a sweeping legal reform in 1982 created a more pro-patent legal environment. This legal reform fostered specialization and enhanced firm performance. Around the world, countries experience faster economic growth when their innovating sectors are characterized by a higher level of specialization. An endogenous growth model with endogenous firm boundaries is developed to disentangle the relationship between legal institutions, firm boundary decisions, and economic growth. I characterize the optimal strength of patent rights and evaluate the actual patent law enforcement in the United States. The pro-patent legal reform in 1982 was welfare-enhancing, but it was too extreme. Swinging back the legal pendulum and weakening patent rights can improve welfare. Chapter 2 evaluates the contribution of venture capital (VC) to promoting entrepreneurship and spawning innovation. We assemble the stylized facts of venture capital, innovation, and economic growth. Funding by venture capitalists is positively associated with patenting activity. VC-backed firms have higher IPO values when they are floated. Following flotation, they have higher R&D-to-sales ratios and grow faster in terms of employment and sales. At the country level, VC investment is positively linked with economic growth. The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. The model is matched with stylized facts about venture capital; viz., statistics by funding round concerning the success rate, failure rate, investment rate, equity shares, and the value of an IPO. We examine how the innovative activity is affected by the capital gains tax rate. Raising capital gains taxation reduces growth and welfare.
Author : Yue Fei
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (114 download)
Download or read book Essays on Venture Capital and Innovation written by Yue Fei and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation investigates the firm incentives to participate in entrepreneurial and innovative activities. The first chapter examines and evaluates the private sector's response to public involvement in venture capital. The second chapter studies and estimates the performance gap between government linked and private venture capitalists and the determining factors of this performance gap. The third chapter provides a theoretical framework to understand and analyze the firm-level innovation incentives in the industrial networks. In Chapter 1, titled "Can Governments Foster the Development of Venture Capital?", I examine the role of government intervention in the emergence of venture capital (VC) in China during 1999-2013 using a novel dataset and a unique policy experiment. The difference-indifference analysis shows that the central government program leads to an increase in local investment from both government and private VCs. In Chapter 2, titled "(Under)performance of government venture capitalists: Evidence and explanations", using the sample from the same source as in Chapter 1, I find that startups backed by government VCs are less likely to have Initial Public Offering (IPO) exits than private VCs. Evidence shows that the performance gap is narrowed down when the VC market develops into a more mature stage. In Chapter 3, titled "Firm Level Match under Imperfect Information Along the Global Value Chain", (joint with Rui Zhang), we develop a 1-m frictional positive assortative matching (PAM) model along the global value chain. We show the existence of multiple equilibria where a supplier could be matched to different headquarters, but at different stages on the value chain. Our model also features countervailing forces of firm innovation incentives and we predict a nonmonotonic pattern between innovation and firm productivity.
Author : Joseph McCahery
Publisher : Oxford University Press, USA
ISBN 13 : 9780199270132
Total Pages : 512 pages
Book Rating : 4.2/5 (71 download)
Download or read book Venture Capital Contracting and the Valuation of High-technology Firms written by Joseph McCahery and published by Oxford University Press, USA. This book was released on 2003 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: Venture capitalists are specialized intermediaries that channel capital to firms and professional services to companies that might otherwise be excluded from the corporate debt market and other sources of private finance. Venture capital financing is used to invest mainly in small and medium size firms with good growth and exit potential. Typically, venture capital firms concentrate in industries with a great deal of uncertainty, where the information gaps among entrepreneurs and venturecapitalist are commonplace. Venture capital firms are active in sectors with a high informational opacity and agency costs. These ventures are identified as financially constrained. Start-up firms rely on venture capital as one of their main sources of funding. Recent empirical research has found that the effect of venture capital on the success of these ventures is considerable. The value of venture capital investment is borne out by the figures which show that venture capital backed-firms grow on average twice as fast as those not backed by venture capital firms. The debate on the development of an efficient venture capital market has forced us to consider which financial instruments, legal rules, labour laws, contracts, and other institutional structures are necessary to create a venture capital market. The contributions to this book have offered insights on the structure of venture capital fund financial contracts, the screening, monitoring and staging of potential investments, the importance of partnership and other legal business forms for investors and start-up firms, the funding of innovation, the valuation of investments, and the exit routes for venture capitalists. The essays in this volume, which draw upon international evidence and ideas from financial economics and law, contribute to further research on the relationship between venture capitalists and entrepreneurs. This collection analyses the main legal and contracting structures in the venture capital cycle. Exploring the differences between the US and European venture capital markets, it focuses on diverse organizational and contractual techniques, such as staged finance, convertible securities, board functions and other forms of control, and the role of exit. Theoretical chapters examine the valuation of entrepreneurial firms and the liquidiation preference in convertible securities. Finally, the book assesses the importance of the IPO market for entrepreneurs, investors and venture capitalists alike.
Download or read book Essays in Venture Capital, Entrepreneurship, and Managerial Success written by and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The first chapter of my dissertation examines the preferences of venture capitalists for syndication partners. Heterogeneity among syndication partners may cause efficiency loss and increase transaction costs but offer syndication partners valuable learning opportunities in the long run, suggesting a tradeoff between the short-term costs versus long-term benefits. Using data on U.S. venture capital investments, I find that venture capital firms are less likely to syndicate with partners who are different from them. The preferences for syndication partners, however, have different implications for the portfolio companies and the venture capital firms. Companies funded by heterogeneous syndicates are less likely to go public or get acquired by other companies. However, venture capital firms that co-invest with more heterogeneous partners are more likely to survive. This paper develops a new method for empirically examining the formation of syndication among multiple firms. It also addresses issues of endogeneity. In the second chapter, we develop an economic framework which articulates the impact of the quality of legal protection offered to investors on the incentives of start-up founders to recruit partners or opt for sole ownership. The theoretical analysis predicts that a positive relationship is likely to exist between the quality of the legal system and ownership concentration of start-ups. This prediction is supported by the data obtained from the Adult Population Survey of the Global Entrepreneurship Monitor project between 2001 and 2004. The third chapter finds that the number of CEOs born in summer is disproportionately small, and firms with summer born CEOs have higher market valuation. Our evidence is consistent with the "relative-age effect" due to school admissions grouping together children with age differences up to one year, with summer-born children disadvantaged throughout life by being younger than non-summer-born classmates. Those younger children.
Author : Sina T. Ateş
Publisher :
ISBN 13 :
Total Pages : 386 pages
Book Rating : 4.:/5 (95 download)
Download or read book Essays on Finance of Innovation, Firm Dynamics, and Economic Growth written by Sina T. Ateş and published by . This book was released on 2015 with total page 386 pages. Available in PDF, EPUB and Kindle. Book excerpt: Aggregate productivity, fundamental cause of long-run economic growth, plays a crucial role in determining economic development and living standards of nations. The main source of aggregate productivity growth is technological advances that are the outcomes of firms' and entrepreneurs' innovative activity. Complementary to the growing literature that studies how firm dynamics shape technological change, my dissertation focuses on how financial decisions of these agents affect this process. The three chapters of my dissertation provide theoretical, empirical, and quantitative investigation of the interplay between financial and innovative actions of heterogeneous firms along with its implications on aggregate productivity growth. Chapter one studies the impact of financial system on net firm entry, an important source of aggregate productivity growth. Selective funding of most promising ideas by financial intermediaries creates a trade-off between the mass of entrant firms and their average contribution to aggregate productivity. This chapter highlights the relevance of firm heterogeneity for the relationship between finance and growth, and discusses the theoretical and empirical implications of the resulting trade-off in firm entry. Chapter two also builds on the above mass-composition link, and uses it to study the permanent productivity losses due to sudden stops (SS). The model embeds the main mechanism into a real business cycle small open economy framework to measure the forgone productivity contribution of entrants deprived of funding. The theoretical prediction is that, during SS, smaller yet on average more productive cohorts enter the market. Chilean plant-level data that cover the 1998 SS verify this prediction, while the calibrated model demonstrates the quantitative significance of heterogeneity and selection in measuring the long-run productivity loss. Chapter three focuses on a specific financial intermediary that is especially relevant to innovation and growth, namely venture capital (VC) finance. It studies VC's quantitative impact on firm dynamics and economic growth using a new dynamic equilibrium model of technological change with heterogeneous firms and an explicit VC market. Distinctively, the model incorporates a unique feature of VC firms: their operational knowledge (OK) bundled with their investment. Experiments based on the estimated model highlight the quantitative relevance of OK and analyze policy implications.
Author : Dan H. Vo
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (889 download)
Download or read book Essays on Entrepreneurial Finance written by Dan H. Vo and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Author : Suting Hong
Publisher :
ISBN 13 :
Total Pages : 178 pages
Book Rating : 4.:/5 (885 download)
Download or read book Essays on the Venture Capital Market written by Suting Hong and published by . This book was released on 2014 with total page 178 pages. Available in PDF, EPUB and Kindle. Book excerpt: There are two ways for a venture capital (VC) firm to enter a new market: initiate a new deal or form a syndicate with an incumbent. Both types of entry events are extensively observed in the data. This dissertation examines (i) the causes of syndication between entrant and incumbent VC firms, (ii) the impact of entry on VC contract terms and survival rates of VC-backed start-up companies, and (iii) the effect of syndication between entrant and incumbent VC firms on the competition in the VC market and the outcomes of incumbent-backed ventures. This dissertation contributes to the existing literature by developing an analytical framework to examine the strategic interactions between entrant and incumbent VC firms, and to investigate the impact of VC firms' entry and syndication on the survival of VC-backed start-ups. The baseline model characterizes the endogenous matching between entrepreneurs and VC firms. In particular, the model captures the following salient features of the VC market: (i) bilateral negotiations between VC firms and entrepreneurs, and (ii) interdependent negotiations of different pairs of VC firms and entrepreneurs. By extending the baseline model to allow for coalition formation among VC firms, this dissertation explores the motive of VC firms to syndicate. Consistent with the empirical observation, the model shows an incumbent VC firm may strategically form syndicates with entrants to maintain its bargaining power. The theoretical analysis provides the following predictions. First, an incumbent VC firm is less likely to syndicate with entrants as the incumbent's expertise increases. Second, entry of VC firms increases the likelihood of survival for incumbent-backed start-up companies, while syndication between entrants and incumbents dampens the competitive effect of entry. Using a data set of VC-backed investments in the U.S. between year 1990 and 2006, this dissertation provides empirical evidence that is consistent with the theoretical predictions. To control for the endogeneity of VC firms' entry and syndication, this dissertation follows instrumental variable approach, and the estimation results remain robust.
Author : Laura Lindsey
Publisher :
ISBN 13 :
Total Pages : 274 pages
Book Rating : 4.F/5 ( download)
Download or read book Essays in Venture Capital written by Laura Lindsey and published by . This book was released on 2004 with total page 274 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Jeffrey Scott Kobayahsi Peter
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (871 download)
Download or read book Three Essays on Venture Capital Finance written by Jeffrey Scott Kobayahsi Peter and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Venture capital finances high-risk, high-return projects. In addition to financing, venture capitalists provide advice and expertise in management, commercialization, and development that enhance the value, success, and marketability of projects. Venture capitalists also have skills in selecting projects with potentially high returns. The first chapter investigates the contracting relationship between venture capitalists and entrepreneurs in a setting where the venture capitalist and entrepreneur contribute intangible assets (advice and effort) to a project that are non-contractible and non-verifiable. In general, in the private market equilibrium, advice provided by the venture capitalist and the number of projects funded are lower than the social optimum. Government tax and investment policies may alleviate these market failures. The impact of a capital gains tax, a tax on entrepreneur's revenue, an investment subsidy to venture capitalists, and government run project enhancing programs are evaluated. Finally, we analyze the effects of a government venture capital firm competing with private venture capital. The second chapter focuses on competition in venture capital markets. We model a three-stage game of fund raising, investment in innovative projects and input of advice and effort, where fund raising is used as an entry deterrence mechanism. We examine the impacts of taxes and subsidies on venture capital market structure. We find that a tax on venture capitalist revenue and a tax on entrepreneur revenue increase the likelihood of entry deterrence and reduce the number of projects funded in equilibrium. A subsidy on investment reduces the likelihood of entry deterrence and increases the number of projects funded. The third chapter examines the venture capitalist's choice of investment in project selection skills and investment in managerial advice. We model, separately, a private venture capitalist and a labour-sponsored venture capitalist (LSVCC) with different objectives. A LSVCC is a special type of venture capitalist fund that is sponsored by a labour union. The private venture capitalist maximizes its expected profits, while the LSVCC maximizes a weighted function of expected profits and returns to labour. Consistent with empirical evidence, the quality of projects, determined by project selection skills and managerial advice, is higher for the private venture capitalist.
Author : Kazem Mochkabad Khoramchahi
Publisher : Springer Nature
ISBN 13 : 3658312661
Total Pages : 193 pages
Book Rating : 4.6/5 (583 download)
Download or read book Equity Crowdfunding written by Kazem Mochkabad Khoramchahi and published by Springer Nature. This book was released on 2020-09-18 with total page 193 pages. Available in PDF, EPUB and Kindle. Book excerpt: Because of the subprime mortgage crisis in 2008, the challenges of securing necessary external capital have become more significant for young ventures. In this realm, equity crowdfunding has evolved into the most promising financing alternative for entrepreneurs and received worldwide attention. By focusing on three subsequent research questions, this book aims to contribute to the ongoing scientific discussion of equity crowdfunding. First, it reveals fruitful future research avenues by providing a systematic overview of the development of equity crowdfunding research. Second, it sheds light on the so far less explored investor perspective and analyzes the decision-making process of equity crowdfunding investors. Third, based on a multi-method approach, the questions of how equity crowdfunding investors evaluate radically innovative ventures and how radically innovative ventures can establish venture legitimacy are explored.
Author : Vladimir Ivanov Ivanov
Publisher :
ISBN 13 :
Total Pages : 290 pages
Book Rating : 4.:/5 (611 download)
Download or read book Essays in Corporate Venture Capital written by Vladimir Ivanov Ivanov and published by . This book was released on 2004 with total page 290 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Michael Migendt
Publisher : Springer
ISBN 13 : 3658172517
Total Pages : 158 pages
Book Rating : 4.6/5 (581 download)
Download or read book Accelerating Green Innovation written by Michael Migendt and published by Springer. This book was released on 2017-02-03 with total page 158 pages. Available in PDF, EPUB and Kindle. Book excerpt: Michael Migendt explains the role of alternative investments in supporting the growth of a sustainable economy and recognizes levers that policy makers, managers and entrepreneurs could use for further accelerating green innovation through finance. He focuses on specific examples of alternative investments into green industries, companies, projects, and infrastructure, covering the developments along the innovation chain. Especially the acceleration of green technologies and the in this context occurring interrelations between the three areas of finance, innovation, and policy are key to this work.
Author : Ankur Chavda
Publisher :
ISBN 13 :
Total Pages : 118 pages
Book Rating : 4.:/5 (113 download)
Download or read book Essays on the Production of Innovation written by Ankur Chavda and published by . This book was released on 2019 with total page 118 pages. Available in PDF, EPUB and Kindle. Book excerpt: Innovation is central to both the competitive strategy of many firms and gains in productivity that lead to economic growth. How do we improve our ability to produce innovations? This dissertation studies three aspects of this question: staged development, vertical integration and venture capital. Staged development, common in many innovative settings including biotech and venture capital of ideas, involves partially funded an idea with the goal of learning more about that idea before additional funding is provided. My result suggests there are cases where committing to ideas, avoiding staged development, can lead to better outcomes. Staged development has the potential of distorting effort to an extent that outweighs any benefit provided by its implicit option value. Research units pursuing innovations can either be integrated within the firm exploiting those innovations or kept as a separate entity. I find that integration leads to a higher rate of new innovations. Separating the research unit can reduce its appetite for risk, changing both the rate and direction of innovation. Finally, uncertainty surrounds strategies to exploit innovations: new ideas by definition have not been tested by market forces. I show how venture capital plays a key role in resolving this uncertainty for entrepreneurs with new ideas. Specifically, venture capital provides the most value for entrepreneurs that are themselves the most uncertain about the underlying value of their ideas.
