Early-stage financing and firm growth in new industries

This paper shows that active investors, such as venture capitalists, can affect the speed at which new ventures grow. In the absence of product market competition, new ventures financed by active investors grow faster in
This paper shows that active investors, such as venture capitalists, can affect the speed at which new ventures grow. In the absence of product market competition, new ventures financed by active investors grow faster initially, though in the long run those financed by passive investors are able to catch up. By contrast, in a competitive product market, new ventures financed by active investors may prey on rivals that are financed by passive investors by “strategically overinvesting” early on, resulting in long-run differences in investment, profits, and firm growth. The value of active investors is greater in highly competitive industries as well as in industries with learning curves, economies of scope, and network effects, as is typical for many “new economy” industries. For such industries, our model predicts that start-ups with access to venture capital may dominate their industry peers in the long run. JEL Classifications: G24; G32 Keywords: Venture capital; dynamic investment; product market competition
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Metadaten
Author:Roman Inderst, Holger Müller
URN:urn:nbn:de:hebis:30-72905
Series (Serial Number):Working Paper Series : Institute for Monetary and Financial Stability (30)
Document Type:Working Paper
Language:English
Date of Publication (online):2009/12/08
Year of first Publication:2009
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2009/12/08
Tag:dynamic investment ; product market competition; venture capital
HeBIS PPN:220364575
Institutes: Institute for Monetary and Financial Stability (IMFS)
Dewey Decimal Classification:330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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