The Persistent Effect of Initial Success: Evidence from Venture Capital

Nanda, Ramana; Samila, Sampsa; Sorenson, Olav

doi:10.5465/ambpp.2017.309

Cited by 8 publications

(12 citation statements)

References 40 publications

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“…To this end, we measure firms' economic and technological value within the earliest 5 years, and we evaluate the predictive performance of a Naïve Bayes classifier that classifies a firm as a hidden gem if and only if it is among the top-z% by a given metric, where z is a parameter that can be tuned to achieve a desired value of recall. We consider various performance metrics, including early productivity, N (5), early economic value, EV (5), early technological value, T V (5), and the sum of early economic and technological value, EV (5) + T V (5). We find that the EV (5) alone achieves a 5.1 fold increase in AuPRC compared to a random classifier (see Fig.…”

Section: Early Patent Value Predicts Hidden Gemsmentioning

confidence: 96%

“…Because of the prominent role played by companies for scientific and technological progress, understanding the regularities and predictability of firms' research success is vital for diverse players. It can indeed help managers to identify effective innovation strategies [4] as well as high-potential investment opportunities [5], and policymakers to design effective policies that promote corporate research activities and accelerate human progress [6].…”

Section: Introductionmentioning

confidence: 99%

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Citations or dollars? Early signals of a firm's research success

Lü

Napolitano

et al. 2021

Preprint

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Scientific and technological progress is largely driven by firms in many domains, including artificial intelligence and vaccine development. However, we do not know yet whether the success of firms’ research activities exhibits dynamic regularities and some degree of predictability. By inspecting the research lifecycles of 7,440 publicly listed firms, we find that the economic value of a firm’s early patents is an accurate predictor of various dimensions of a firm’s future research success. At the same time, a smaller set of future top-performers do not generate early patents of high economic value, but they are detectable via the technological value of their early patents. Importantly, the observed predictability cannot be explained by a cumulative advantage mechanism, and the observed heterogeneity of the firms’ temporal success patterns markedly differs from patterns previously observed for individuals’ research careers. Our results uncover the dynamical regularities of the research success of firms, and they could inform managerial strategies as well as policies to promote corporate development and accelerate human progress.

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Section: Early Patent Value Predicts Hidden Gemsmentioning

confidence: 96%

Section: Introductionmentioning

confidence: 99%

Citations or dollars? Early signals of a firm's research success

Lü

Napolitano

et al. 2021

Preprint

View full text Add to dashboard Cite

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“…Furthermore, even if the benefits of early stage venture capital are positive on average, they may not be positive for all firms. The literature of 'entrepreneurship as experimentation' suggests that, while VCs can separate relatively good firms from the rest, they are unable to pick the potential winners in this set (Kerr et al, 2014;Nanda et al, 2020). There is also evidence documenting how VCs are influenced by systematic biases on easily observable demographics, such as gender (Guzman and Kacperczyk, 2019), and there is increasing evidence that venture capitalists may be differentially able to help firms located close to them (Bernstein et al, 2016).…”

Section: Overviewmentioning

confidence: 99%

Treatment Effects in Strategic Management: With an Application to Choosing Early Stage Venture Capital

Guzmán

2021

SSRN Journal

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This paper uses the Rubin Causal Model to formalize the treatment effects of a firm choice on its performance. Building from Porter, a firm choice can shape profitability through both strategy and operational effectiveness, but they are distinct in how they do so. The strategic treatment effect is the benefit that is predictable from a firm's characteristics (i.e., resources) and their joint configuration. The strategic determinant function is a mapping of resources to treatment effects, and the role of resource interactions in it determines the importance of coherence for a strategy. Under unconfoundedness, the strategic treatment effect, strategic determinant function, and coherence can be estimated in high-dimensional observational data using machine learning. I present an application estimating the gains from choosing venture capital as early stage financing versus other forms of capital. The results highlight the advantage of considering strategic benefits in this choice. For equity outcomes, there is no average treatment effect of early stage VC, but there is significant heterogeneity: some entrepreneurs can benefit substantially from raising early stage VC, while others be negatively affected. This heterogeneity is predictable from founder, industry and location characteristics. The estimated role of coherence in this choice is moderate. The formalizations in this paper also show that several additional assumptions are required when assessing strategic benefits compared to the usual causal inference. R code to replicate these functions will be included.

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“…Carhart 1997), analysts (e.g., Mikhail et al 2004), hedge funds (e.g. Jagannathan et al 2010), private equity (e.g., Braun et al 2017;Kaplan and Schoar 2005), and venture capitalists (e.g., Nanda et al 2018). This literature has yielded mixed results.…”

Section: Introductionmentioning

confidence: 99%

Persistence of Activist Short-Sellers' Performance: The Effect of Past Success.

Hu¹

2020

Preprint

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While the prior literature has documented that the aggregate level of short sales is informative, critics have expressed concern that individual activist short sellers (who not only take short positions but also publish campaigns against target firms) manipulate stock prices to profit from their short positions. We find that activist short sellers do not exhibit persistence in predicting targets' returns in various windows, but do show persistence in identifying targets that delist. Moreover, the market identifies and efficiently reacts to this persistent aspect of activists' performance at the time the campaign is announced. We also find that the short side is able to capitalize on this more negative market reaction on the campaign initiation date by building up short positions prior to the public campaign announcement. Overall, our results suggest that the market provides incentives for activists to maintain their reputations and not issue manipulative campaigns.

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The Persistent Effect of Initial Success: Evidence from Venture Capital

Cited by 8 publications

References 40 publications

Citations or dollars? Early signals of a firm's research success

Citations or dollars? Early signals of a firm's research success

Treatment Effects in Strategic Management: With an Application to Choosing Early Stage Venture Capital

Persistence of Activist Short-Sellers' Performance: The Effect of Past Success.

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