In this paper, HBS professors Nanda and Rhodes-Kropf examine how the environment in which a new venture was first funded relates to its ultimate outcome, by specifically looking at what happened to venture capital-backed startups funded between 1980 and 2004. Results show that firms that were funded in "hot" markets were more likely to fail but created more value and had more highly cited patents when they succeeded. These results suggest that that flood of capital in hot markets lowers the cost of experimentation for early stage investors, and therefore allows them to fund more novel projects in periods of heated financial activity.
Entrepreneurs may be great innovators, but not necessarily great presenters. Associate Professor Thomas Steenburgh teaches them the fine art of product pitching.
When starting a company, entrepreneurs must decide how to divide shares among the founders. The simplest way is to split the shares equally, which is what one third of startups decide to do. But that may not be the fairest or most effective way—especially in cases where some founders are doing more for the company than others. In this paper, Thomas F. Hellman (University of British Columbia) and Noam Wasserman (Harvard Business School) examine when and whether teams are likely to divide shares equally among all the founders, and explore whether such an equity split is good for the company.
Published in 2010
While start-up firms are key to any technological revolution, they also run a high risk of failure. To that end, investors often provide limited capital in several careful stages, gaining confidence in a firm before doling out another round of funding. However, these investors still face the possibility that other investors won't provide follow-on funding, even when the firm's prospects remain sound. That's a big risk for individual investors who can't afford to fund a new firm all by themselves, and whose investment will flounder if others don't invest, too.
Research by HBS professors Ramana Nanda and Matthew Rhodes-Kropf explores why future investors may not fund the project at its next stage even if the fundamentals of the project have not changed.
Recent theoretical models predict that countries with stricter labor policies will specialize in less innovative activities due to the higher worker turnover frequently associated with rapidly changing sectors. HBS visiting scholar Ant Bozkaya and HBS professor William R. Kerr examine how differences in labor regulations across European countries influence the development of private equity markets, comprised of venture capital and buy-out investors. In so doing, the researchers provide the first empirical evidence for this theoretical prediction at the industry level in the entrepreneurial finance literature. They also make a methodological contribution by demonstrating how jointly modeling the different policies for providing worker insurance delivers more consistent results than their individual relationships would indicate by themselves.
Published in 2009
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.
Published in 2008
Harvard Business School professor William A. Sahlman's article on how to write a great business plan is a Harvard Business Review classic, and has just been reissued in book form. We asked Sahlman what he would change if he wrote the article, now a decade old, today.
Published in 2006
Venture capital firms often consider investments in companies located far away or in unfamiliar industries. How do they spot these opportunities and also reduce risk? It's the power of networks, says Harvard Business School professor Toby Stuart—and understanding how they work in VC is just now starting to be understood.
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.
Why does entrepreneurship flourish in some countries and struggle in others? Economists and policymakers are divided on whether the rapid rate of global financial integration, specifically the explosive growth of foreign direct investment, helps or hurts local entrepreneurs and domestic economies. To see the differential effects of restrictions on capital mobility on entrepreneurship, Alfaro of HBS and Charlton of the London School of Economics analyzed data on 24 million firms—listed and unlisted—in nearly 100 countries in 1999 and 2004.
Published in 2005
At the annual Cyberposium conference held at Harvard Business School, venture capitalists pondered what makes for winners and losers in the new VC landscape.
For new ventures a lack of resources makes growth difficult to come by—just ask those nine out of ten fledgling firms that fail. Professor Mukti Khaire says the key may be in acquiring intangible resources such as legitimacy, status, and reputation.
Four venture capitalists explain to Harvard Business School professor Mike Roberts and senior research associate Lauren Barley how they evaluate potential investments.
Published in 2004
Female entrepreneurs often lack start-up cash. This excerpt from the book Clearing the Hurdles, co-authored by HBS professor Myra M. Hart, explains what women can do about it.
What is it like today for women entrepreneurs in their quest for venture capital funding? In an interview, professor Myra M. Hart shares her latest research and ideas.
Published in 2002
A look at local entrepreneurship in four economies in Asia offers a fascinating lens on Foreign Direct Investment, says HBS professor Yasheng Huang. Discussing his new research proposal at an HBS International Seminar recently, Huang also offered insights on what it might mean as China rises.
Using a case discussion on Gray Security Services, Harvard Business School associate professor Walter Kuemmerle highlights issues confronting entrepreneurs and investors interested in Africa.
Published in 2001
Yes, the economy has soured. But that doesn't mean venture capitalists are waiting on the sidelines. VC panelists discuss what is hot (healthcare), what is not (wireless), and how daily life has changed (a lot).
The Springboard Venture Capital Forum, held recently at Harvard Business School, was a platform for twenty-three women entrepreneurs seeking heavy-duty financing.
Is angel investing right for you? HBS professor Howard Stevenson and David Amis, previous Managing Director of the Venture Capital Report, provide tools and advice to potential angels, and a resource manual for early stage investors.
According to HBS professor Clayton M. Christensen, the venture capital industry—like computers, telephony, and brokerage before it—is susceptible to the same forces that have waylaid many seemingly invincible players. What that means, said the author of the influential bestseller The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, is that the time is ripe for the right people to create new, disruptive forms of financing.
Published in 2000
Are business incubators a fleeting phenomenon or a lasting way of bringing start-ups to fruition? Four HBS professors argue that one particular model—the "networked incubator"—is most likely to endure.
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.
In attracting funding for a new venture, report HBS Professor Monica Higgins and her colleague Ranjay Gulati of Northwestern University, professional ties and company connections are even more important than a good product in inspiring the trust and loosening the wallets of potential investors.
Published in 1999
HBS Professor William Sahlman tells entrepreneurs how to give themselves a better shot at success.
