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New research on going public from Harvard Business School faculty on issues including choosing financing vehicles, managing a public company, and case studies about company IPOs.
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The Ferrari Way

by Michael Blanding

Secretive sports car maker Ferrari opens up to Stefan Thomke about how it has bucked industry trends to achieve success. Open for comment; 0 Comments.

The Creation and Evolution of Entrepreneurial Public Markets

by Shai Bernstein, Abhishek Dev, and Josh Lerner

Since 1990, new stock exchanges geared toward fast-growing, entrepreneurial companies have proliferated around the world. This analysis shows that exchanges in countries with better shareholder protection allowed younger and less profitable companies to raise more capital. These markets alone cannot boost entrepreneurial activity but need enabling institutions.

A Bank That Takes Parmesan as Collateral: The Cheese Stands a Loan

by Carmen Nobel

Nikolaos Trichakis discusses the subject of a new Harvard Business School case study: the Italian regional bank Credito Emiliano, which accepts young Parmigiano-Reggiano as collateral, and then ages it in climate-controlled vaults. Open for comment; 0 Comments.

How Crowds and Experts Kickstart the Arts

Re: Ramana Nanda

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.

Users Love Ello, But What’s the Business Model?

Re: John A. Deighton & Sunil Gupta

Social network upstart Ello is generating terrific buzz among users, but can its ad-free approach compete against Facebook? Professors John Deighton and Sunil Gupta provide insights into what drives social media success. Closed for comment; 0 Comments.

Online Banks Fill Funding Needs for Small Business

by Karen Mills

In the final column on small business lending, Karen Mills is optimistic that the rise of alternative online banks can fund entrepreneurial business growth. Closed for comment; 0 Comments.

Government Can Do More to Unfreeze Small Business Credit

by Karen Mills

In part three of her series on the state of small-business lending, Karen Mills discusses how public-private partnerships and government guarantee programs have the potential to enhance economic growth. Closed for comment; 0 Comments.

Why Small-Business Lending Is Not Recovering

by Karen Mills

Lending to small businesses has not returned to levels seen before the financial crisis. Karen Mills, former head of the US Small Business Administration, explains the reasons and why the situation is not likely to improve anytime soon. Open for comment; 0 Comments.

Is a Gap in Small-Business Credit Holding Back the American Economy?

by Karen Mills

Karen Mills, former head of the US Small Business Administration, analyzes the current state of availability of bank capital for small business. Open for comment; 0 Comments.

In the Future of Sports Investing, Media Is the Best Bet

by Carmen Nobel

Sports investing is no longer just about buying teams and selling beer. Bob Higgins discusses why media, digital devices, and invention of fan-friendly sports are driving next-generation investors. Open for comment; 0 Comments.

The Alibaba Effect

by Bill Kirby & Warren McFarlan

Alibaba's $200 billion mega-IPO is history-making in a number of ways. Bill Kirby and Warren McFarlan discuss what the deal says about Chinese entrepreneurship and American markets. Open for comment; 0 Comments.

Investment Cycles and Startup Innovation

by Ramana Nanda & Matthew Rhodes-Kropf

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.

The First Deal: The Division of Founder Equity in New Ventures

by Thomas F. Hellmann & Noam Wasserman

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. Key concepts include: The researchers consider four founder characteristics: years of work experience, prior founding experience, whether the founder contributed to the founding idea, and the amount of capital invested into the venture. They find that greater team heterogeneity in entrepreneurial experience, idea generation, and capital contributions predict a lower probability of equal splitting. The larger the founding team, the less likely it is to divide shares equally. The more combined work experience a team has, the less likely the team will split the shares equally. Teams where founders are related through family are more likely to split the equity equally. An equal split is associated with a lower valuation than an unequal split, especially in cases of quick negotiations. Founders who split equally when they should split unequally may be giving up a substantial amount of financial value. (Related research suggests that such teams may also be less stable.) Closed for comment; 0 Comments.

Financing Risk and Bubbles of Innovation

by Ramana Nanda & Matthew Rhodes-Kropf

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. Key concepts include: The paper introduces the concept of financing risk--the risk that a project cannot garner the additional funding it needs to proceed, even if its fundamentals remain sound. When investors become worried, future investors will not support the project. Withdrawing support today leads to a self-fulfilling jump to a poor financing environment. Investors face a trade-off: either providing more capital to novel ideas to protect against financing risk, or providing less funding to maximize knowledge before providing more capital. The most innovative firms face the most acute trade-off situations, and thus, funding to these firms is the most unstable. The additional capital that enters the market during "hot" times goes not only to weaker projects, but also to more innovative projects that are a good investment only when financing risk is low. Thus, the most innovative projects may need a hot funding environment to get funding at all. Closed for comment; 0 Comments.

Labor Regulations and European Private Equity

by Ant Bozkaya & William R. Kerr

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. Key concepts include: Policy choices regarding the optimal levels and mechanisms of labor market insurance are complex and should consider many economic and non-economic factors. Worker insurance policies favoring labor market expenditures (e.g., unemployment insurance benefits) over employment protection regulations encourage greater private equity entry and larger investment levels. This is true for both domestic investors and U.S.-inbound venture capital investments. This effect is conditional on the level of worker insurance provided, which is of lesser importance for private equity patterns than the policy mechanisms employed. Closed for comment; 0 Comments.

Government’s Positive Role in Kick-Starting Entrepreneurship

by Sean Silverthorne

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. Closed for comment; 0 Comments.

The Money Connection—Understanding VC Networks

by Julia Hanna

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. Key concepts include: Networks are important in all industries, but especially so in VC where investment opportunities can be located far away from the centers of venture capital. "Spanning ties" enable investors with fixed locations and industry expertise to learn of opportunities outside their geographic and industry domains, while also reducing risk. Ties are more likely to form between VC firms in the context of bandwagons, such as a "hot" IPO market, that create a rush of excitement around particular types of companies. Closed for comment; 0 Comments.

The Success of Reverse Leveraged Buyouts

by Sean Silverthorne

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. Key concepts include: RLBOs have outperformed other types of IPOs, perhaps because private equity groups prepare their portfolio companies to perform as public companies. RLBOs have performed well across many market cycles. The most successful performances were associated with larger RLBOs, as well as offerings by larger groups. So-called quick flips generally have underperformed the market. Closed for comment; 0 Comments.

International Financial Integration and Entrepreneurship

by Laura Alfaro & Andrew Charlton

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. Key concepts include: Contrary to the fears of many, capital mobility has not hindered entrepreneurship: Instead, international financial integration is related to greater firm activity. Countries with fewer barriers to international capital have a higher proportion of small firms. By the same token, firms tend to be older in less financially integrated countries. International financial integration might increase the total amount of capital in the economy and improve the availability of capital and credit. Thanks to FDI, local firms could benefit from linkages with foreign firms. This work did not look at growth or the overall welfare effects of capital liberalization on individual countries, an important area for future research. Closed for comment; 0 Comments.

VCs Survey Post-Bubble Opportunities

by Julie Hanna

At the annual Cyberposium conference held at Harvard Business School, venture capitalists pondered what makes for winners and losers in the new VC landscape. Closed for comment; 0 Comments.