Publications
33 results found
Cao R, Koning R, Nanda R, 2023, Sampling bias in entrepreneurial experiments, Management Science, ISSN: 0025-1909
Using data from a prominent online platform for launching new digital products, we document that ‘sampling bias’—defined as the difference between a startup’s target customer base and the actual sample on which early ‘beta tests’ are conducted—has a systematic and persistent impact on the venture’s success. Specifically, we show that products with a female-focused target market launching on a typical day, when nine in ten users on this platform are men, experience 45% less growth a year after launch than those for whom the target market is more male-focused. By isolating exogenous variation in the composition of beta testers unrelated to the characteristics of launched products on that day, we find that on days when there are unexpectedly more women beta testers on the platform—reducing the amount of sampling bias for female-focused products—the gender-performance gap shrinks towards zero. Our results high-light how sampling bias can lead to fewer successfully commercialized innovations for consumers who are underrepresented among early users.
Ewens M, Nanda R, Stanton C, 2023, Founder-CEO compensation and selection into venture capital-backed entrepreneurship, The Journal of Finance, ISSN: 0022-1082
Das A, Ghani E, Grover A, et al., 2023, JUE insight: infrastructure and finance: evidence from India’s GQ highway network, Journal of Urban Economics, ISSN: 0094-1190
We use data from Reserve Bank of India to study the impact of India’s Golden Quadrilateral (GQ) highway project on finance-dependent activity. Loan volumes increase by 20%–30% in districts along GQ and are stronger in industries more dependent upon external finance. Loan growth begins with increases in average branch size and in places with more pre-GQ loan activity. New branch openings come later, consistent with short-run adjustment costs to expanding branch networks. These patterns are not evident in placebo tests using delayed investments in NS-EW highways. Results suggest the depth of initial financial infrastructure shapes how infrastructure investments impact localities.
Nanda R, Howell S, 2023, Networking frictions in venture capital, and the gender gap in entrepreneurship, Journal of Financial and Quantitative Analysis, Pages: 1-57, ISSN: 0022-1090
We find that male participants in Harvard Business School’s New Venture Competition whowere randomly exposed to more VC investors on their panel were substantially more likely tostart a VC-backed startup post-graduation, indicating that access to investors impacts fundraising independent of the quality of ideas. However, female participants experience no benefitfrom exposure to male or female VCs, which appears related to a reduced propensity to reachout to VCs to whom they were exposed. Our results therefore also demonstrate gender-baseddifferences in the degree to which increased exposure to investors can address networking frictions in venture capital.
Dalla Fontana S, Nanda R, 2023, Innovating to net zero: can venture capital and start-ups play a meaningful role?, Entrepreneurship and Innovation Policy and the Economy, Vol: 2, Pages: 79-105, ISSN: 2771-1668
We show that patents related to clean energy generation and storage, changes to industrial production, and carbon capture and sequestration—where breakthroughs are seen as being particularly critical to addressing climate change—are more than twice as likely to cite fundamental science than other net-zero emissions patents, highlighting their “deep tech” focus compared with innovation in areas such as energy efficiency, information and communication technologies, and transportation. Interestingly, firms backed by venture capital (VC) have patents that are significantly more likely to cite fundamental science compared with other firms, including in these deep tech sectors. Net-zero related patents granted to VC-backed firms are also three to five times more likely to be among the group of highest-cited patents, indicating the distinctive nature of innovations commercialized by VC-backed firms. However, VC still accounts for a tiny share of all patents related to net zero, and the patenting focus of VC-backed firms has shifted away from deep tech in recent years. We discuss the growing literature on the potential frictions facing the commercialization of science-based deep tech innovations and touch on potential solutions that might enable VC to play a more meaningful role in supporting the transition to net zero in the coming decades.
Kerr SP, Kerr WR, Nanda R, 2022, House prices, home equity and entrepreneurship: evidence from U.S. census micro data, Journal of Monetary Economics, Vol: 130, Pages: 103-119, ISSN: 0304-3932
During 1992-2007, house price growth is strongly correlated with local entrepreneurship. We show with Census Bureau data that most of this entry is related to construction and real estate; these entrants tend to be small and short-lived. Using a 1998 Texas reform that allowed home equity lending for the first time in the state, we isolate that entrepreneurship through the collateral channel tends to be longer-lived and more balanced across sectors. The collateral channel is a tenth or less of the entry associated with house price increases, driven by a small share of homeowners who are constrained without price growth.
Jensen TL, Leth-Petersen S, Nanda R, 2022, Financing constraints, home equity and selection into entrepreneurship, Journal of Financial Economics, Vol: 145, Pages: 318-337, ISSN: 0304-405X
We exploit a mortgage reform that differentially unlocked home equity across the Danish population and study how this impacted selection into entrepreneurship. We find that increased entry was concentrated among entrepreneurs whose firms were founded in industries where they had no prior work experience. Nevertheless, we find that marginal entrants benefiting from the reform had higher pre-entry earnings and a significant share of these entrants started longer-lasting firms. Our results are most consistent with a view that housing collateral enabled higher ability individuals with less-well-established track records to overcome credit rationing and start new firms, rather than only leading to ‘frivolous entry’ by those without prior industry experience.
Janeway WH, Nanda R, Rhodes-Kropf M, 2021, Venture capital booms and start-up financing, Annual Review of Financial Economics, Vol: 13, Pages: 111-127, ISSN: 1941-1375
We review the growing literature on the relationship between venture capital (VC) booms and start-up financing, focusing on three broad areas. First, we discuss the drivers of large inflows into the VC asset class, particularly in recent years, which are related to but also distinct from macroeconomic business cycles and stock market fluctuations. Second, we review the emerging literature on the real effects of VC financing booms. A particular focus of this work is to highlight the potential impact that booms (and busts) can have on the types of firms that VC investors choose to fund and the terms at which they are funded, independent of investment opportunities—thereby shaping the trajectory of innovation being conducted by start-ups. Third, an important insight from recent research is that booms in VC financing are not just a temporal phenomenon but can also be seen in terms of the concentration of VC investment in certain industries and geographies. We also review the role of government policy, exploring the degree to which it can explain the concentration of VC funding in the United States over the past 40 years in just two broad areas—information and communication technologies and biotechnology. We conclude by highlighting promising areas of further research.
Nanda R, Barrot J-N, 2020, The employment effects of faster payment: Evidence from the federal quickpay reform, The Journal of Finance, Vol: 75, Pages: 3139-3173, ISSN: 0022-1082
We study the impact of Quickpay, a reform that permanently accelerated payments to small business contractors of the U.S. government. We find a strong direct effect of the reform on employment growth at the firm level. However, we document substantial crowding out of nontreated firms' employment within local labor markets. While the overall net employment effect is positive, it is close to zero in tight labor markets. Our results highlight an important channel for alleviating financing constraints in small firms, but emphasize the general‐equilibrium effects of large‐scale interventions, which can lead to lower aggregate outcomes depending on labor market conditions.
Nanda R, Samila S, Sorenson O, 2020, The persistent effect of initial success: evidence from venture capital, Journal of Financial Economics, Vol: 137, Pages: 231-248, ISSN: 0304-405X
We use investment-level data to study performance persistence in venture capital (VC). Consistent with prior studies, we find that each additional IPO among a VC firm's first ten investments predicts as much as an 8% higher IPO rate on its subsequent investments, though this effect erodes with time. In exploring its sources, we document several additional facts: successful outcomes stem in large part from investing in the right places at the right times; VC firms do not persist in their ability to choose the right places and times to invest; but early success does lead to investing in later rounds and in larger syndicates. This pattern of results seems most consistent with the idea that initial success improves access to deal flow. That preferential access raises the quality of subsequent investments, perpetuating performance differences in initial investments.
Lerner J, Nanda R, 2020, Venture capital's role in financing innovation: what we know and how much we still need to learn, Journal of Economic Perspectives, Vol: 34, Pages: 237-261, ISSN: 0895-3309
Venture capital is associated with some of the most high-growth and influential firms in the world. Academics and practitioners have effectively articulated the strengths of the venture model. At the same time, venture capital financing also has real limitations in its ability to advance substantial technological change. Three issues are particularly concerning to us: 1) the very narrow band of technological innovations that fit the requirements of institutional venture capital investors; 2) the relatively small number of venture capital investors who hold and shape the direction of a substantial fraction of capital that is deployed into financing radical technological change; and 3) the relaxation in recent years of the intense emphasis on corporate governance by venture capital firms. While our ability to assess the social welfare impact of venture capital remains nascent, we hope that this article will stimulate discussion of and research into these questions.
Comin D, Nanda R, 2019, Financial development and technology diffusion, IMF ECONOMIC REVIEW, Vol: 67, Pages: 395-419, ISSN: 2041-4161
We examine the extent to which financial market development impacts the diffusion of 16 major technologies, looking across 17 countries, from 1870 to 2000. We find that greater depth in financial markets leads to faster technology diffusion for more capital-intensive technologies, but only in periods closer to the invention of the technology. In fact, we find no differential effect of financial depth on the diffusion of capital-intensive technologies in the late stages of diffusion or in late adopters. Our results are consistent with a view that local financial markets play a critical role in facilitating the process of experimentation that is required for the initial commercialization and diffusion of technologies.
Ewens M, Nanda R, Rhodes-Kropf M, 2018, Cost of experimentation and the evolution of venture capital, Journal of Financial Economics, Vol: 128, Pages: 422-442, ISSN: 0304-405X
We study how technological shocks to the cost of starting new businesses have led the venture capital model to adapt in fundamental ways over the prior decade. We both document and provide a framework to understand the changes in the investment strategy of venture capitalists (VCs) in recent years – an increased prevalence of a “spray and pray” investment approach – where investors provide a little funding and limited governance to an increased number of startups that they are more likely to abandon, but where initial experiments significantly inform beliefs about the future potential of the venture. This adaptation and related entry by new financial intermediaries has led to a disproportionate rise in innovations where information on future prospects is revealed quickly and cheaply, and reduced the relative share of innovation in complex technologies where initial experiments cost more and reveal less.
Nanda R, Rhodes-Kropf M, 2017, Financing risk and innovation, Management Science, Vol: 63, Pages: 901-918, ISSN: 0025-1909
We provide a model of investment in new ventures that demonstrates why some places, times, and industries should be associated with a greater degree of experimentation by investors. Investors respond to financing risk, a forecast of limited future funding, by modifying their focus to finance less innovative firms. In equilibrium, financing risk disproportionately impacts innovative ventures with the greatest real option value by creating a trade-off between protecting the firm from financing risk and maximizing its real option value. We propose that extremely novel technologies may need “hot” financial markets to get through the initial period of discovery or diffusion.
Nanda R, Rhodes-Kropf M, 2017, INNOVATION POLICIES, ENTREPRENEURSHIP, INNOVATION, AND PLATFORMS, Editors: Furman, Gawer, Silverman, Stern, Publisher: EMERALD GROUP PUBLISHING LTD, Pages: 37-80
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- Citations: 3
Mollick E, Nanda R, 2016, Wisdom or madness? Comparing crowds with expert evaluation in funding the arts, Management Science, Vol: 62, Pages: 1533-1553, ISSN: 0025-1909
In fields as diverse as technology entrepreneurship and the arts, crowds of interested stakeholders are increasingly responsible for deciding which innovations to fund, a privilege that was previously reserved for a few experts, such as venture capitalists and grant-making bodies. Little is known about the degree to which the crowd differs from experts in judging which ideas to fund, and, indeed, whether the crowd is even rational in making funding decisions. Drawing on a panel of national experts and comprehensive data from the largest crowdfunding site, we examine funding decisions for proposed theater projects, a category where expert and crowd preferences might be expected to differ greatly. We instead find significant agreement between the funding decisions of crowds and experts. Where crowds and experts disagree, it is far more likely to be a case where the crowd is willing to fund projects that experts may not. Examining the outcomes of these projects, we find no quantitative or qualitative differences between projects funded by the crowd alone and those that were selected by both the crowd and experts. Our findings suggest that crowdfunding can play an important role in complementing expert decisions, particularly in sectors where the crowds are end users, by allowing projects the option to receive multiple evaluations and thereby lowering the incidence of “false negatives.”
Nanda R, Rhodes-Kropf M, 2016, Regional variation in venture capital: Causes and consequences, Geneva Reports on the World Economy, Vol: 2016, Pages: 55-71, ISSN: 1607-8616
Nanda R, Kropf MR, 2016, Financing entrepreneurial experimentation, Innovation Policy and the Economy, Vol: 16, Pages: 1-23, ISSN: 1531-3468
The fundamental uncertainty of new technologies at their earliest stages implies that it is virtually impossible to know the true potential of a venture without learning about its viability through a sequence of investments over time. We show how this process of experimentation can be particularly valuable in the context of entrepreneurship because most new ventures fail completely, and only a few become extremely successful. We also shed light on important costs to this process of experimentation and demonstrate how these can fundamentally alter both the rate and direction of start‑up innovation across industries, regions, and periods of time.
Nanda R, Kind L, 2015, Case Study Is a Start-Up's Strength Becoming Its Weakness?, HARVARD BUSINESS REVIEW, Vol: 93, Pages: 145-147, ISSN: 0017-8012
Nanda R, Rhodes-Kropf M, 2015, Financing experiments, SCIENCE, Vol: 348, Pages: 1200-1200, ISSN: 0036-8075
Sahlman WA, Nanda R, 2015, Stretch the Mission?, HARVARD BUSINESS REVIEW, Vol: 93, Pages: 113-117, ISSN: 0017-8012
Sahlman WA, Nanda R, 2015, Stretch the mission?, Harvard Business Review, Vol: 2015, ISSN: 0017-8012
Kerr WR, Nanda R, 2015, Financing Innovation, ANNUAL REVIEW OF FINANCIAL ECONOMICS, VOL 7, Editors: Lo, Merton, Publisher: ANNUAL REVIEWS, Pages: 445-462
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- Citations: 159
Nanda R, Nicholas T, 2014, Did bank distress stifle innovation during the Great Depression?, Journal of Financial Economics, Vol: 114, Pages: 273-292, ISSN: 0304-405X
We find a negative relationship between bank distress and the level, quality and trajectory of firm-level innovation during the Great Depression, particularly for R&D firms operating in capital intensive industries. However, we also show that because a sufficient number of R&D intensive firms were located in counties with lower levels of bank distress, or were operating in less capital intensive industries, the negative effects were mitigated in aggregate. Although Depression era bank distress was associated with the stifling of innovation, our results also help to explain why technological development was still robust following one of the largest shocks in the history of the U.S. banking system.
Kerr WR, Nanda R, Rhodes-Kropf M, 2014, Entrepreneurship as Experimentation, JOURNAL OF ECONOMIC PERSPECTIVES, Vol: 28, Pages: 25-48, ISSN: 0895-3309
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- Citations: 217
Astebro T, Herz H, Nanda R, et al., 2014, Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics, JOURNAL OF ECONOMIC PERSPECTIVES, Vol: 28, Pages: 49-69, ISSN: 0895-3309
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- Citations: 134
Nanda R, Rhodes-Kropf M, 2013, Investment cycles and startup innovation, JOURNAL OF FINANCIAL ECONOMICS, Vol: 110, Pages: 403-418, ISSN: 0304-405X
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- Citations: 164
Canales R, Nanda R, 2012, A darker side to decentralized banks: Market power and credit rationing in SME lending, JOURNAL OF FINANCIAL ECONOMICS, Vol: 105, Pages: 353-366, ISSN: 0304-405X
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- Citations: 102
Kerr WR, Nanda R, 2011, BANKING DEREGULATIONS, FINANCING CONSTRAINTS, AND FIRM ENTRY SIZE, 24th Annual Congress of the European-Economic-Association, Publisher: OXFORD UNIV PRESS, Pages: 582-593, ISSN: 1542-4766
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- Citations: 29
Kerr WR, Nanda R, 2011, Financing constraints and entrepreneurship, HANDBOOK OF RESEARCH ON INNOVATION AND ENTREPRENEURSHIP, Editors: Audretsch, Falck, Heblich, Lederer, Publisher: EDWARD ELGAR PUBLISHING LTD, Pages: 88-103
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- Citations: 61
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