Josh Lerner

45 Results

 

Resolving Patent Disputes that Impede Innovation

Technical standards both spur innovation and protect the innovators, but abuses in the intellectual property protection system threaten US competitiveness. Josh Lerner and Jean Tirole discuss remedies. Open for comment; 2 Comments posted.

Standard-Essential Patents

Standards play a key role in many industries, including those critical for future growth. Intellectual property (IP) owners vie to have their technologies incorporated into standards, so as to collect royalty revenues (if their patents dominate some of the functionalities embodied in the standard) or just to develop a competitive edge through their familiarity with the technology. However, it is hard to know in advance whether patents are complements or substitutes, i.e., how essential they are. Thus a major policy issue in standard setting is that patents that seem relatively unimportant may, by being included into the standard, become standard-essential patents (SEPs). In an attempt to curb the monopoly power that the standard creates, most standard-setting organizations (SSOs) require the owners of patents covered by the standard to grant licenses on fair, reasonable and non-discriminatory (FRAND) terms. Needless to say, such loose price commitments can lead to intense litigation activity. This paper constitutes a first pass at a formal analysis of standard-essential patents. It builds a framework in which essentialization and regulation functions can be analysed, provides a precise identification of the inefficiencies attached to the lack of price commitment, and suggests a policy reform that restores the ex-ante competition called for in the literature and the policy debate. Read More

The Disintermediation of Financial Markets: Direct Investing in Private Equity

As numerous news stories document, interest on the part of institutional investors in undertaking direct investments—and thus bypassing intermediaries—appears to have increased substantially. More generally, the impact of financial intermediation has also been a subject of considerable examination in the corporate finance literature. On the one hand, these middlemen should be able to overcome transaction cost and information problems; on the other, they may be prone to agency conflicts that affect their performance. In this paper, the authors focus on private equity, a setting in which disintermediation has become increasingly common. Private equity might appear to be a textbook case where the benefits from financial intermediation—in this case, specialized funds—would be substantial: not only are the transaction costs associated with structuring these investments large, but substantial information asymmetries surround the selection, monitoring, and nurturing of the investments, giving rise to potential information advantages for specialized investors. Using proprietary data covering 392 deals by a set of institutions, both co-investments and direct investments, between 1991 and 2011, the authors find a sharp contrast between the performance of solo deals and that of coinvestment deals. Outperformance of solo direct investments is due in part to their ability to exploit information advantages by investing locally and in settings where information problems are not too great, as well as to their relative outperformance during market peaks. The underperformance of coinvestments appears to be associated with the higher risk of deals available for coinvestments. Read More

Crowdfunding a Poor Investment?

Crowdfunding promises to democratize funding of startups. But is that necessarily a good thing? Entrepreneurial finance experts Josh Lerner, Ramana Nanda, and Michael J. Roberts on the promises and problems with the newest method for funding small businesses. Closed for comment; 12 Comments posted.

Faculty Symposium Showcases Breadth of Research

Faculty present their latest research on the human tendency toward dishonesty, the use of crowdsourcing to solve major scientific problems, and the impact of private equity investments. Open for comment; 3 Comments posted.

Book Excerpt: “The Architecture of Innovation”

In his new book, The Architecture of Innovation, Josh Lerner explores flaws in how corporations fund R&D. This excerpt discusses the corporate venturing model and how incentive schemes make it successful. Open for comment; 1 Comment posted.

Funding Innovation: Is Your Firm Doing it Wrong?

Many companies are at a loss about how to fund innovation successfully. In his new book, The Architecture of Innovation, Professor Josh Lerner starts with this advice: get the incentives right. Open for comment; 4 Comments posted.

Creating a Venture Ecosystem in Brazil: FINEP’s INOVAR Project

Since the mid-1990s, several groups in Brazil have been working on developing an indigenous venture capital ecosystem, largely to stimulate the establishment of innovative companies and help them gain access to capital. In 2000, the Brazilian government's Agency for Innovation (Financiadora de Estudos e Projectos, or FINEP), with support from the Multilateral Investment Fund (MIF), unveiled INOVAR, a program to address these needs. In the 12 years since INOVAR's debut, the program has had two iterations and has been recognized as a role model for government efforts to stimulate a VC ecosystem. In this paper, Ann Leamon and Josh Lerner present a brief background on private equity in both Latin America and Brazil, then explore the genesis of INOVAR (Innovation), the details of the program, and its results. They conclude with challenges to be addressed. Read More

Private Equity and Employment

Is there truth to the claim that leveraged buyouts bring huge job losses? In this paper, the authors examine employment responses to US private equity buyouts at a much more granular level than earlier research, exploiting a much larger sample of transactions, a more extensive set of controls, and a novel ability to track outcomes at firms and establishments (e.g., individual factories and offices). They also exploit the strengths of their data to explore new questions about private equity's role in the creative destruction process and its impact on restructuring activity inside target firms. Overall, they find that private equity buyouts catalyze the creative destruction process in the labor market as measured by gross job flows and the purchase and sale of business establishments, with only a modest net impact on employment. Research by Steven J. Davis, John C. Haltiwanger, Ron S. Jarmin, Josh Lerner, Javier Miranda. Read More

Sharpening Your Skills: Leveraging Intellectual Property

Many companies lack a coherent policy for maximizing the value of their intellectual property. In this collection from our archives, Harvard Business School faculty offer insights on the importance of IP and how best to protect and use it. Read More

Getting to Eureka!: How Companies Can Promote Creativity

As global competition intensifies, it's more important than ever that companies figure out how to innovate if they are going to maintain their edge, or maintain their existence at all. Six Harvard Business School faculty share insights on the best ways to develop creative workers. Closed for comment; 20 Comments posted.

Business Plan Contest: 15 Years of Building Better Entrepreneurs

Since 1997, Hundreds of student-entrepreneurs have tested their ideas at Harvard Business School's annual Business Plan Contest. Here is what they have learned about success, failure, and themselves. From the HBS Alumni Bulletin. Open for comment; 2 Comments posted.

With a Little Help from My (Random) Friends: Success and Failure in Post-Business School Entrepreneurship

While starting a new company usually requires an independent spirit and self-sufficient nature, the decision to jump into entrepreneurship is often influenced by the acts of others. In this paper, Josh Lerner and Ulrike Malmendier explore how the entrepreneurial tendencies of peers affect not only one's decision to start a company, but whether that company will succeed. The researchers use data from a decade of first-year class sections at Harvard Business School. Read More

Sharpening Your Skills: Motivation

Can employers motivate employees to work more creatively, ethically, or productively? Or does that power reside solely within the individual? Recent research at Harvard Business School suggests workers can be motivated by their environment. Read More

Inducement Prizes and Innovation

Throughout recent history, many foundations have tried to induce innovation through competition, offering massive cash prizes to inventors who meet the challenge of creating world-changing inventions. For instance, in 1996 the X Prize Foundation offered $10 million to the first non-government organization to launch a reusable, suborbital manned spacecraft twice within two weeks. The prize was awarded in 2004 to a project financed by Microsoft co-founder Paul Allen. The problem is that inventors cannot win these competitions if they cannot come up with funding to realize their inventions, and research and development costs often exceed the amount of the cash prize. So, does the incentive of an eventual prize really induce innovation? In this paper, Liam Brunt, Josh Lerner, and Tom Nicholas look to answer that question, using a data set of prizes awarded by the Royal Agricultural Society of England (RASE) between 1839 and 1939. Read More

The Consequences of Financial Innovation: A Counterfactual Research Agenda

While financial innovation is often praised as a positive force for societal growth, it also takes much of the blame for the recent global financial crisis. In this paper, Harvard Business School professors Josh Lerner and Peter Tufano explore financial innovation and discuss how it differs from other types of innovation. Read More

Managing the Open Source vs. Proprietary Decision

In their new book, The Comingled Code, HBS professor Josh Lerner and London School of Economics professor Mark Schankerman look at the impact of open source software on economic development. Our book excerpt discusses implications for managers. Open for comment; 2 Comments posted.

“An Unfair Advantage”? Combining Banking with Private Equity Investing

Does the combination of banking and private equity investing endow banks with superior information that allows them to identify good prospects and garner superior returns? Or does the combination bestow banks with an unfair ability to expand their balance sheets, capturing benefits within the bank at the expense of the overall market and ultimately the taxpayers? INSEAD's Lily Fang and Harvard Business School professors Victoria Ivashina and Josh Lerner examined nearly 8,000 unique private equity transactions between 1978 and 2009, looking in depth at the nature of the private equity investors, the structure of the investments, and the performance of the firms. Collectively, findings suggest that there are risks in combining banking and private equity investing. The results are consistent with many of the worries about these transactions articulated by policymakers. Read More

The Consequences of Entrepreneurial Finance: A Regression Discontinuity Analysis

What difference do angel investors make for the success and growth of new ventures? William R. Kerr and Josh Lerner of HBS and Antoinette Schoar of MIT provide fresh evidence to address this crucial question in entrepreneurial finance, quantifying the positive impact that angel investors make to the companies they fund. Angel investors as research subjects have received much less attention than venture capitalists, even though some estimates suggest that these investors are as significant a force for high-potential start-up investments as venture capitalists, and are even more significant as investors elsewhere. This study demonstrates the importance of angel investments to the success and survival of entrepreneurial firms. It also offers an empirical foothold for analyzing many other important questions in entrepreneurial finance. Read More

Private Equity and Industry Performance

In response to the global financial crisis that began in 2007, governments worldwide are rethinking their approach to regulating financial institutions. Among the financial institutions that have fallen under the gaze of regulators have been private equity (PE) funds. There are many open questions regarding the economic impact of PE funds, many of which cannot be definitively answered until the aftermath of the buyout boom of the mid-2000s can be fully assessed. HBS professor Josh Lerner and coauthors address one of these open questions, by examining the impact of PE investments across 20 industries in 26 major nations between 1991 and 2007. In particular, they look at the relationship between the presence of PE investments and the growth rates of productivity, employment, and capital formation. Read More

Government’s Positive Role in Kick-Starting Entrepreneurship

The U.S. government has spent billions of dollars bailing out troubled companies. Is it time for Uncle Sam to invest in new entrepreneurial firms as well? Professor Josh Lerner makes the case for limited government involvement in his book Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed—and What to Do about It. Read More

Buy Local? The Geography of Successful and Unsuccessful Venture Capital Expansion

From Silicon Valley to Herzliya, Israel, venture capital firms are concentrated in very few locations. More than half of the 1,000 venture capital offices listed in Pratt's Guide to Private Equity and Venture Capital Sources are located in just three metropolitan areas: San Francisco, Boston, and New York. More than 49 percent of the U.S.-based companies financed by venture capital firms are located in these three cities. This paper examines the location decisions of venture capital firms and the impact that venture capital firm geography has on investments and outcomes. Findings are informative both to researchers in economic geography and to policymakers who seek to attract venture capital. Read More

The Investment Strategies of Sovereign Wealth Funds

The role of sovereign wealth funds (SWFs) in the global financial system has been increasingly recognized in recent years, and many reports suggest that SWFs are often employed to further the geopolitical and strategic economic interests of their governments. The resources controlled by these funds—estimated to be $3.5 trillion in 2008—have grown sharply over the past decade. Projections, while inherently tentative due to the uncertainties about the future path of economic growth and commodity prices, suggest that they will be increasingly important actors in the years to come. Despite this significant and growing role, financial economists have devoted remarkably little attention to these funds. The lack of scrutiny must be largely attributed to the deliberately low profile adopted by many SWFs, which makes systematic analysis challenging. Bernstein, Lerner, and Schoar analyze how SWFs vary in their investment styles and performance across various geographies and governance structures. Taken as a whole, results suggest that high levels of home investments by SWFs, particularly those with the active involvement of political leaders, are associated with trend chasing and worse performance. Read More

Fear of Rejection? Tiered Certification and Transparency

The sub-prime crisis has thrown a harsh spotlight on the practices of securities underwriters, which provided too many complex securities that proved to ultimately have little value. Certifiers such as rating agencies, journals, standard setting bodies, and providers of standardized tests play an increasingly important role in the market economies. Yet as scrutiny of rating agencies in the aftermath of the sub-prime crisis has shown, these organizations have complex incentive structures and may adopt problematic approaches. On an explicit level, all major rating agencies follow a well-defined process, whose end product is the publication of a rating based on an objective analysis. But firms have been historically able to get rating agencies not to disclose ratings that displease them. HBS professor Josh Lerner and colleagues examined when certifiers might adopt more complex rating schemes, rather than the simple pass-fail scheme, and highlight that such nuanced schemes are more likely when the costs of such ratings are lower. In addition, these schemes are more common when sellers are less averse to the revelation of information about their quality, and more impatient. Read More

The Success of Persistent Entrepreneurs

Want to be a successful entrepreneur? Your best bet might be to partner with entrepreneurs who have a track record of success, suggests new research by Paul A. Gompers, Josh Lerner, David S. Scharfstein, and Anna Kovner. Read More

Performance Persistence in Entrepreneurship

All else equal, a venture-capital-backed entrepreneur who starts a company that goes public has a 30 percent chance of succeeding in his or her next venture. First-time entrepreneurs, on the other hand, have only an 18 percent chance of succeeding, and entrepreneurs who previously failed have a 20 percent chance of succeeding. But why do these contrasts exist? Such performance persistence, as in the first example, is usually taken as evidence of skill. However, in the context of entrepreneurship, the belief that successful entrepreneurs are more skilled than unsuccessful ones can induce real performance persistence. In this way, success breeds success even if successful entrepreneurs were just lucky. Success breeds even more success if entrepreneurs have some skill. Read More

The Litigation of Financial Innovations

The past 10 years have seen a profound change in the conditions under which financial innovations are pursued. Because patents fundamentally alter the way in which innovations can be used, assessing the impact of patenting is critical to understanding the future of financial innovation. Litigation is crucial to delineating the boundaries of patent awards, and this paper examines the litigation of such financial patents to gain insights into the future of financial innovation. This paper seeks to understand the litigation of financial innovations, an area where patents have only recently been granted. Read More

Secrets of the Academy: The Drivers of University Endowment Success

University endowments are important and interesting institutions both in the investing community and society at large. They play a role in maintaining the academic excellence of many universities that rely heavily on income from their endowments. In contrast, poor finances can undermine a school's ability to provide academic services altogether. Endowments have also received much attention recently for their superior investment returns compared with other institutional investors. In this study, the authors document the trends in college and university endowment returns and investments in the United States between 1992 and 2005. Read More

Monetizing IP: The Executive’s Challenge

Many companies fail to develop a strategy around protecting and monetizing their intellectual property. In this Q&A, Harvard Business School professor Josh Lerner discusses current trends in IP including the rise of patent pools. Read More

Venture Capital

Professor Josh Lerner provides a summary report on the recently held HBS Centennial colloquium on venture capital. Read More

Government’s Misguided Probe of Private Equity

The U.S Department of Justice has begun an inquiry into potentially anti-competitive behavior on the part of leading private equity firms. Professor Josh Lerner looks to history to underscore why this move carries the prospect of damaging what is actually an incredibly competitive industry that creates much value. Read More

What’s Behind the Private Equity Boom?

Podcast: On just one day in November, $52 billion worth of private equity deals were announced, and more than $200 billion worth of deals have been agreed to so far in 2006. The deals include such major names as Qantas ($8.7 billion), Hertz ($15 billion), and Clear Channel ($ 18.7 billion). Are public markets being eclipsed? Are investors and employees being victimized? Professor Josh Lerner looks at historical trends and current deals to put it all in perspective. Read More

The Success of Reverse Leveraged Buyouts

RLBOs have a bad rap, but Josh Lerner says the reputation is not deserved. Studying almost 500 private equity-led IPOs over a 22-year period, Lerner and co-researcher Jerry Cao conclude that reverse leveraged buyouts in general outperformed other IPOs and the market as a whole. Quick flips, however, are another story. Read More

Sorting Out the Patent Craze

Some companies patent anything that moves to block innovation by competitors. But what does this mean for standard setting organizations? Professor Josh Lerner explains the challenges facing SSOs in this HBS Working Knowledge Q&A. Read More

The U.S. Patent Game: How to Change It

Innovators and society are paying too high a price in the current patent system, says a new book by Adam B. Jaffe and Harvard Business School’s Josh Lerner. A book excerpt and Q&A with Lerner. Read More

European Private Equity—Still a Teenager?

If the private equity industry has a life cycle, these are the teenage years for Europe, according to panelists at the conference session on European private equity. Read More

Surveying the VC Landscape

In an e-mail Q&A, HBS professor Josh Lerner discusses issues including transparency and private equity, buyout firms, Sarbanes-Oxley, and the role of VC on innovation. Read More

Venture Capital Goes Boom—or Bust?

In The Money of Invention: How Venture Capital Creates New Wealth, HBS professors Paul Gompers and Josh Lerner demystify the role VC plays in the economy. Read an excerpt. Plus: Q&A with the authors. Read More

The Determinants of Corporate Venture Capital Success

Corporate-sponsored venture capital funds do not have to fail. But as HBS professors Paul Gompers and Josh Lerner explain, hybrid organizations such as Xerox Technology Ventures face considerable challenges on the road to success. Read More

Presentation Round-Up

This round-up of other panels and presentations at the IS2K conference includes a look at the emerging "e-service" model, the future of the U.S. telecommunications infrastructure, and a discussion of "Genes on the Web." Read More

The Simple Economics of Open Source

What motivates thousands of computer programmers-and even the companies that employ them-to share their code with the world? The growing use of so-called "open source" software may not seem, at first glance, to make much economic sense. But according to research by HBS Professor Josh Lerner and his colleague Jean Tirole, economics may actually help explain why open source works as well as it does. Read More

Incubators: The New Venture Capitalists?

Once the sleepy domain of universities and public development agencies, business incubators have shown new life in the Internet economy. Focused on providing new ventures not just with funding, but also with services, advice, connections and physical space, they offer a new way for dot.com companies to get to market fast. Four leaders from this rapidly growing industry looked at incubators and their relation to the traditional world of venture capital. Read More

The Future of the Venture Capital Cycle

Despite many success stories and a rapid rise to prominence, the venture capital industry remains a mystery to most, and questions about its sustainability persist. In this excerpt from their pathbreaking book The Venture Capital Cycle, HBS Professors Paul Gompers and Josh Lerner look toward the future of this misunderstood financial intermediary. Read More