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Working Paper
Financing Ventures
The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of financing, venture capitalists evaluate the viability of startups. If viable, venture capitalists provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital: statistics by funding round concerning success rates, failure rates, investment rates, equity shares, and IPO values. The increased efficiency ...
Report
Subsidizing Startups under Imperfect Information
We study the early stages of firm creation under imperfect information. Because startups make error-prone decisions due to rational inattention, the model generates both inefficient entry and labor misallocation. We show that information frictions alter the effects of lump-sum transfers to startups: the total employment gain is amplified due to an unintended increase in inefficient entry, most entrants hire fewer workers, and misallocation goes up. The transfer makes low-size, previously dominated actions profitable, affecting the entire endogenous learning problem and making even productive ...
Working Paper
Financing Ventures
The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of financing, venture capitalists evaluate the viability of startups. If viable, venture capitalists provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital: statistics by funding round concerning success rates, failure rates, investment rates, equity shares, and IPO values. The increased efficiency ...
Working Paper
Financing Ventures
The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of financing, venture capitalists evaluate the viability of startups. If viable, venture capitalists provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital; viz., statistics by funding round concerning the success rates, failure rates, investment rates, equity shares, and IPO values. Raising capital ...
Working Paper
Financing Ventures
The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of Òˆnancing, venture capitalists evaluate the viability of startups. If viable, venture capitalists provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital: viz., statistics for each round of funding that concern the success rates, failure rates, investment rates, equity shares, and IPO values. ...
Working Paper
An Elementary Model of VC Financing and Growth
This article uses an endogenous growth model to study how the improvements in financing for innovative start-ups brought by venture capital (VC) affect firm innovation and growth. Partial equilibrium results show how lending contracts change as financing efficiency improves, while general equilibrium results demonstrate that better screening and development of projects by VC investors leads to higher aggregate productivity growth.
Working Paper
Synergizing Ventures
Venture capital (VC) and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and initial patent quality than non-VC-backed ones. VC backing increases a startup's likelihood of reaching the right tails of the firm size and innovation distributions. Furthermore, outcomes are better for startups matched with more experienced venture capitalists. An endogenous growth model, where venture capitalists provide both expertise and financing for business startups, is constructed to match these facts. The presence of venture capital, the ...
Working Paper
Financing Ventures: Some Macroeconomics
The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of financing, venture capitalists evaluate the viability of startups. If viable, venture capitalists provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital; viz., statistics by funding round concerning the success rates, failure rates, investment rates, equity shares, and IPO values. Raising capital ...
Briefing
Why Are Startups Important for the Economy?
Startups come in all shapes and sizes. While small in number, a small group of successful startups is important for understanding aggregate outcomes such as employment and productivity. In this article, we look at some distinguishing characteristics of startups and what makes them important for the aggregate economy. Furthermore, we dig into the cause behind the long-run decline in U.S. entrepreneurism and whether the recent pandemic broke these trends. While the recent surge in business applications seems encouraging at first, there are signs that it reflects a restructuring of the economy ...
Firms Start with Fewer Employees over Last 25 Years
The average new firm that is less than a year old had 20% fewer workers in 2019 than it did in 1994.