The Impact of Venture Capital Monitoring

Bernstein, Shai; Giroud, Xavier; Townsend, Richard R.

doi:10.1111/jofi.12370

Cited by 567 publications

(263 citation statements)

References 53 publications

(44 reference statements)

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“…Bernstein, Giroud and Townsend (2016) show how the introduction of new airline routes, which reduces the cost for a VC of overseeing a startup, leads to an increase in the quality and quantity of patents and a higher likelihood of a successful acquisition or IPO.…”

Section: Venture Capitalistsmentioning

confidence: 99%

Financing Ventures

Sánchez

Han

Greenwood

2017

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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 …nancing, venture capitalists evaluate the viability of startups. If viable, VCs 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., the average cash-on-cash multiple and statistics by funding round concerning the success rate, failure rate, investment rate, equity shares, and the value of an IPO. Raising capital gains taxation reduces growth and welfare.

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Section: Venture Capitalistsmentioning

confidence: 99%

Financing Ventures

Sánchez

Han

Greenwood

2017

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“…By imposing an identical window for accumulation of citations both pre-and post-regulatory shock for both treatment and control firms, this approach mitigates concerns about results being driven by truncation 2 biases. This approach is recommended in Lerner and Seru (2015) and has been used by Lerner, Sorensen, andStrömberg (2011), Bernstein (2015), and Bernstein, Giroud, and Townsend (2016).…”

Section: Robustness To Truncation Bias (Refer Section 41 In the Paper)mentioning

confidence: 99%

Mutual Fund Transparency and Corporate Myopia

2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: Pressure from institutional money managers to generate profits in the short run is often blamed for corporate myopia. Theoretical research suggests that money managers' short term focus stems from their career concerns and greater fund transparency can amplify these concerns. Using a difference-in-differences design around a regulatory shock that increased transparency about fund managers' portfolio choices, we examine whether increased transparency encourages myopic corporate investment behavior. We find that corporate innovation declines following the regulatory shock. Moreover, evidence from mutual fund trading behavior corroborates that these results are driven by increased short-term focus of money managers. Terms of use: Documents inVikas would like to thank the Centre for Financial Research (CFR) in Cologne for their continued support. We thank Andrea Prat for helpful clarifications regarding his theoretical work. We appreciate helpful comments from two anonymous referees,

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“…Because investing imparts important industryspecific knowledge, VCs tend to invest in industries in which they have been active in the past (Gompers et al 2008). In addition, distance plays a key role in the ability of VCs to monitor their investments (Bernstein, Giroud, and Townsend (2015)). This implies that a VC's investments will be geographically concentrated and subsequent investments will tend to be located in the same geographic areas as previous investments.…”

Section: Empirical Strategymentioning

confidence: 99%

Venture Capital and the Performance of Incumbents

Dore

2015

FEDS

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I study the effect of investment in young, private firms by venture capitalists (VC) on public firms in the same industry. I construct an instrument for VC investment that relies on individual VC's investment histories, holdings of equity stakes in IPO firms, and aggregate market returns immediately following those IPOs. I find that increased VC investment has a large effect on incumbent profitability.The effect arises due to higher costs and not depressed sales. The effect is short lived as firms respond by reallocating resources away from treated markets and by reducing their use of labor. * Federal Reserve Board of Governors; email: tim.dore@frb.gov. I would like to thank Paul Gompers, Steven Kaplan, Tobias Moskowitz, Marina Niessner, Robin Prager, Savina Rizova, Amir Sufi, and Jhe Yun for their comments and suggestions and seminar participants at the Federal Reserve Board of Governors and the University of Chicago and conference participants at the 2014 Conference on the Dynamics of Entrepreneurship for insightful comments. All errors are my own. The analysis and conclusions set forth are those of the author and do not indicate concurrence by other members of the staff, by the Board of Governors, or by the Federal Reserve Banks. Any opinions and conclusions expressed herein are those of the author and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. 1What effect does venture capital (VC) investment have on incumbent firms? VCs have financed several of the largest companies in the United States -including Amazon, Apple, Facebook, and Google -and the success of these firms has led directly to the decline of previous industry leaders. More broadly, VC-backed firms grow and innovate at much higher rates than other firms; while Puri and Zarutskie (2012) find that only 0.13% of firms founded between 1991 and 2005 ever received VC investment, VC-backed firms accounted for 35% of IPOs, 8% of granted patents, and received 14% of patent citations between 1991 and 2007. This strong growth suggests that VC investment may create important competition for established firms.At the same time, the nature of the industry -investing in young firms with little to no revenue -means that VC investment typically results not in industry leaders but instead in failed firms. For instance, VCs invested approximately $100 billion in firms in 2000 but only 6% of those firms grew large enough to go public. Moreover, 43% of firms that first received a VC investment between 1998 and 2000 failed by 2005 (Puri and Zarutskie 2012). The frequent failure of these firms suggests that VC investment might have little effect on incumbents.In this paper, I study the effect of VC investment on the profitability of public incumbent firms. Estimating this effect is complicated by the fact that the econometrician does not observe the true set of investment opportunities but VCs and firms do. When there is a positive shock to investment opport...

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The Impact of Venture Capital Monitoring

Cited by 567 publications

References 53 publications

Financing Ventures

Financing Ventures

Mutual Fund Transparency and Corporate Myopia

Venture Capital and the Performance of Incumbents

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