
- 15 Dec 2020
- Working Paper Summaries
Biased Sampling of Early Users and the Direction of Startup Innovation
New ventures catering to female customers should be aware that the underrepresentation of women among early users on digital platforms can reduce the venture’s growth and chances of survival. As a result of gaining fewer early users, these ventures reduce future product development and are less likely to raise VC funding.

- 27 Jul 2020
- Working Paper Summaries
The Evolution of CEO Compensation in Venture Capital-Backed Startups
Resolving uncertainty related to market demand—so called “product-market” fit—marks a key inflection point in the compensation contract for CEOs of venture-capital backed firms.

- 07 Jun 2020
- Working Paper Summaries
Financial Distancing: How Venture Capital Follows the Economy Down and Curtails Innovation
Common wisdom holds that VC investment and VC-backed startups are relatively insulated from downturns. This study shows that the relative quantity and quality of innovation declines more for VC-backed firms than for other types of firms during downturns.

- 22 Apr 2020
- Research Event
How Investors Are Sizing Up Climate Change’s Risks—and Opportunities
What are the financial implications of rising seas and extreme weather? Asset managers and risk experts gathered at Harvard Business School to discuss how they’re evaluating climate risk in their portfolios. Open for comment; 0 Comments.

- 07 Aug 2019
- Research & Ideas
Big Infrastructure May Not Always Produce Big Benefits
Government spending on bridges, roads, and other infrastructure pieces does not always ignite economic good times, say William Kerr and Ramana Nanda. The key question: Are financiers nearby? Open for comment; 0 Comments.

- 29 Jun 2019
- Working Paper Summaries
Infrastructure and Finance: Evidence from India's GQ Highway Network
In India, the Golden Quadrilateral highway network connects four major cities. This study of the relationship between the infrastructure project and development of the local financial sector finds that, in districts along and near the GQ, initial levels of financial development shaped how, and where, infrastructure investment could jumpstart real economic activity.

- 27 Jun 2017
- First Look
First Look at New Research and Ideas, June 27
Building Hyperloop One ... Leading Coca-Cola in Turkey ... Improving profit in the mobile-money market.

- 11 May 2017
- Working Paper Summaries
Coordination Frictions in Venture Capital Syndicates
A startup typically has more than one investor, each with different incentives. Drawing on the authors’ experience, this paper documents frictions occurring when VCs with differing objectives work together in syndicates. Entrepreneurs must be careful about selecting and building the syndicate of VCs who back their firm.

- 10 Feb 2017
- Working Paper Summaries
The Persistent Effect of Initial Success: Evidence from Venture Capital
To understand better what channels might account for persistence in the fund-level performance of private equity firms, the authors examine the individual investments underlying fund-level returns.

- 29 Jul 2016
- Working Paper Summaries
Can Paying Firms Quicker Affect Aggregate Employment?
In 2011, the United States federal government accelerated payments by 15 days to a subset of small-business government contractors. This study shows that, on average, each accelerated dollar of sales led to an almost 10 cent increase in payroll, with two-thirds of the increase coming from new hires and the remainder from increased earnings per worker. These findings highlight a new channel through which financial frictions affect firm-level employment.
- 26 Jul 2016
- First Look
July 26, 2016
Looking under Disney's 'tentpole' strategy ... The right way to show distress at work ... Quick payment boosts employment growth.
- 12 May 2015
- Research & Ideas
How Crowds and Experts Kickstart the Arts
Ramana Nanda and Ethan Mollick look into how experts and crowds—the National Endowment for the Arts and Kickstarter—make choices about backing proposed theater shows. Open for comment; 0 Comments.

- 01 Dec 2014
- Working Paper Summaries
Financing Innovation
There is growing consensus that well-functioning financial markets play a central role in driving economic growth through their ability to spur technological innovation. In this paper for the Annual Review of Financial Economics, the authors ask how financial markets might actively shape the nature of R&D that is undertaken. They also examine how this may impact technological innovation and growth through the shaping of the ideas that are developed across firms. Drawing on a new but growing literature on the role that capital markets and financial intermediaries play in impacting firm-level innovation, the authors first elaborate on theoretical contributions regarding why financing R&D projects might be distinct from financing other types of projects and the channels through which financial intermediaries and capital markets can impact innovation. They then discuss empirical studies on financing innovation in mature firms, in particular the literature on how ownership and capital structure impact the amount and nature of innovation undertaken by firms. The paper also looks at innovation in startups and the growing literature on the effect that multi-stage financing has on innovation in young firms. Three main themes emerge: 1) A growing body of work documents a role for debt financing related to innovation. 2) A very active area of research has looked at "learning" across multi-stage financing. 3) There is strong interaction between financing choices for innovation and changing external conditions. Key concepts include: Financing constraints can be extensive in the context of firms engaged in R&D and innovation-with the ability to shape both the rate and the trajectory of innovation. Capital structure plays a central role in the outcome of innovations. Bank finance is an important source of finance, particularly for larger firms with tangible and intangible assets to pledge as collateral. Public markets may provide deep pockets but pose a set of agency costs that might be particularly harmful for firms engaged in exploration and novel innovations. There is a growing interest among academics and practitioners in the multi-stage financing of innovation, both in established firms and startups, and understanding the optimal contracts and policies that might stimulate innovation. Closed for comment; 0 Comments.

- 18 Nov 2014
- Working Paper Summaries
Financial Development and Technology Diffusion
Most scholarship looking at the role of financial market development in productivity and economic growth has tended to focus on the role of better developed financial markets in allocating capital efficiently across investment opportunities. In this paper, the authors provide evidence for another key role played by well-developed financial markets: reducing the frictions associated with the adoption and the diffusion of new technologies. Using a large dataset that covers the diffusion of 16 major technologies across 55 countries and 130 years, the authors examine whether greater depth in the banking sector leads to faster diffusion of these new technologies. Results provide compelling evidence that banking sector depth facilitates the faster diffusion of more capital intensive technologies. This effect operates in the early stages of diffusion and in the early adopters of technology. Overall, the evidence points to the importance of capital markets for the experimentation required to overcome the initial hurdles of adoption and diffusion. Key concepts include: Well-developed financial markets reduce the frictions associated with the adoption and diffusion of new technologies. Domestic capital markets play a key role in the diffusion of technologies in a country, particularly in the early stages of the technology's lifecycle. Closed for comment; 0 Comments.

- 30 Oct 2014
- Working Paper Summaries
Housing Collateral, Credit Constraints, and Entrepreneurship-Evidence from a Mortgage Reform
One of the strongest findings in studies of entrepreneurship is the clear positive correlation between personal wealth and the propensity to engage in entrepreneurship. One study, for example, has shown that entrepreneurs comprise just under 9 percent of households in the United States, but hold about 40 percent of total net worth. The most common explanation for this correlation is that credit constraints pose an important barrier to entry for less wealthy individuals. However, others have questioned the degree to which financing constraints are barriers to entrepreneurship, particularly in advanced economies where firms have adequate access to capital. In this paper, the authors consider a unique mortgage reform in Denmark to study how increasing access to credit through the unlocking of housing collateral for personal loans had an impact on entrepreneurship. Findings show that the reform affected the ability to draw on debt backed by home equity. However, despite the positive and statistically significant effect of relaxing credit constraints on entrepreneurship, the magnitudes are small. Furthermore, an important reason for the small magnitude was that the marginal business founded by those who benefited from the reform was of lower quality, where the new entrants failed within two years of entry. Overall, the results paint a more nuanced picture of the extent to which financing constraints are important in settings with well-developed credit markets, and the role that home equity can play in alleviating these. Key concepts include: Findings address the longstanding question of the importance of credit constraints for entrepreneurship. Housing collateral shifts the bank's adjudication decision from a specific project to the creditworthiness of the borrower. On the one hand, good entrepreneurial projects may be able to be started or sustained. On the other hand, though, optimistic entrepreneurs may start lower quality businesses because they do not face the same discipline from the bank. Closed for comment; 0 Comments.

- 19 Jun 2014
- Working Paper Summaries
Wisdom or Madness? Comparing Crowds with Expert Evaluation in Funding the Arts
In fields as diverse as technology entrepreneurship and the arts, crowds of interested stakeholders are increasingly responsible for deciding which innovations to fund, a privilege that was previously reserved for a few experts, such as venture capitalists and grant-making bodies. Despite the growing role of crowds in making decisions once left to experts, however, we know little about how crowds and experts may differ in their ability to judge projects, or even whether crowd decision-making is based on any rational criteria at all. Drawing on a panel of national experts and data from the crowd funding platform Kickstarter, this study offers the first detailed comparison of crowd and expert judgment. There are three main findings. First, on average, there is a remarkable degree of congruence between the realized funding decisions by crowds and the evaluation of those same projects by experts. Second, there seems to be an "art" to raising money from crowds, one that may be systematically different from that of raising money from experts. Third, crowd funded projects are equally likely to have delivered on budget, result in organizations that continue to operate, and be successful in other ways. Overall, crowd funding appears to allow projects the option to receive multiple evaluations and reach out to receptive communities that may not otherwise be represented by experts. Key concepts include: Crowds and experts make similar funding decisions. Where crowds and experts disagree, it is far more likely to be a case where the crowd is willing to fund projects that experts may not. Despite this, the findings show no quantitative or qualitative differences between projects funded by the crowd alone and those that were selected by both the crowd and experts. Closed for comment; 0 Comments.
- 09 Sep 2013
- Lessons from the Classroom
Teaching Climate Change to Skeptics
The Business and Environment Initiative at Harvard Business School aims to shift the debate about climate change from a political discussion to a practical conversation about risk and reward. Closed for comment; 0 Comments.
- 01 Jul 2013
- Research & Ideas
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; 0 Comments.

- 07 Nov 2011
- Working Paper Summaries
Investment Cycles and Startup Innovation
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. Key concepts include: Experimentation and innovation are linked to the state of the venture capital market. Even the most experienced investors invest in riskier and more innovative projects at the top of the cycle. Hot markets seem to facilitate the experimentation that is needed for the commercialization and diffusion of radical new technologies. Hot markets may therefore be a critical aspect of the process through which new technologies are commercialized. Closed for comment; 0 Comments.
One More Way the Startup World Hampers Women Entrepreneurs
Early feedback is essential to launching new products, but women entrepreneurs are more likely to receive input from men. Research by Rembrand Koning, Ramana Nanda, and Ruiqing Cao. Open for comment; 0 Comments.