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.

Scheduled for presentation: AFA (2025)

Venture capitalists have been criticized for underinvesting in nascent technologies that build on basic science, also known as deep tech. However, deep-tech startups typically face high technical risks not amenable to the VC model. We study whether public funding of academic research aimed at filling gaps in basic science, thereby reducing technical risk, can foster VC investment. Exploiting the BRAIN Initiative (BI), a focused government program with the goal of mapping the human brain, we find an increase in VC investments in neurotech startups accompanied by higher valuations and more successful VC exits. The channels driving these results are in line with reduced technical risk: 1) a higher supply of technical labor reflected in more STEM academics as employees; 2) more innovation, as measured by the quantity and quality of patents, including breakthrough patents; 3) enhanced integration of neurotechnologies with complementary technologies, especially AI and machine learning, which aligns with the BI's data-driven mission. Our results indicate that by supplying basic science and skilled labor, mission-oriented public funding crowds in private investments in emerging technologies.

Work in progress