Working Papers

Presented at the EFA (2022), CICF (2022), SFS Cavalcade Asia-Pacific (2022), WEFI (2022), FMA (2022), FIRN (2022), FMA Asia Pacific (2022), FMCG (2022)

We examine how venture capitalists (VCs) adapt their financing strategies to support startups competing against deep-pocketed incumbents. Employing textual analysis to identify a startup's potential competitors, we show that when the competitors are cash-rich, VCs make their financing less conditional by providing more funding each round and evaluating the startup less on short-term performance. This approach requires VCs to rely more on continuous monitoring and liquidation protection, and is restricted to large funds and those with specialized experience. Our results suggest that, as large firms have gained greater financial power,  VCs serve as a counter-balancing force to sustain business dynamism.

Venture capitalists have been criticized for underinvesting in basic science. Yet, the public good nature of basic research necessitates public funding. We study whether public funding of academic research can foster VC investments in basic science. Exploiting the BRAIN Initiative, a focused government program for boosting neuroscience research, we find an increase in venture capital investments in neurotech startups accompanied by higher valuations and more successful VC exits. Three channels drive these results: 1) a higher supply of skilled labor as observed through more academic human capital as founders or inventors; 2) more innovation, as measured by the quantity and quality of patents, including breakthrough patents; and 3) more integration of neuroscience with other technologies, especially AI and machine learning. Our results indicate that by reducing the downside risk of early-stage basic research, well-designed public funding crowds in private investments in emerging technologies.

Work in progress