This paper examines the significance of including a company's location of origin in its name, a practice known as using an eponymous location name. Our theory demonstrates that signalling an origin from a prestigious location is an appealing strategy for relatively weaker companies, whereas stronger companies tend to avoid it. We empirically test this theory on a sample of UK university spin-outs from 2010 to 2021. Eponymous location names are particularly prevalent among spin-outs from Oxbridge (i.e., Oxford and Cambridge). As predicted by our theory, eponymous location names are negatively related to measures of fundraising success after controlling for spin-out origin. Nommer son entreprise d'apr & egrave;s Oxbridge ou non, telle est la question! Cet article examine l'importance d'inclure le lieu d'origine d'une entreprise dans son nom, une pratique aussi d & eacute;sign & eacute;e par nom g & eacute;ographique & eacute;ponyme. Notre mod & egrave;le th & eacute;orique montre que le fait d'indiquer une origine g & eacute;ographique prestigieuse constitue une strat & eacute;gie attrayante pour les entreprises relativement faibles, tandis que les entreprises solides tendent & agrave; l'& eacute;viter. Nous testons empiriquement cette th & eacute;orie & agrave; partir d'un & eacute;chantillon de jeunes pousses issues d'universit & eacute;s britanniques entre 2010 et 2021. Les noms & eacute;voquant le lieu d'origine sont particuli & egrave;rement fr & eacute;quents chez les entreprises d & eacute;riv & eacute;es des universit & eacute;s d'Oxford et de Cambridge. Comme le pr & eacute;dit notre th & eacute;orie, les noms g & eacute;ographiques & eacute;ponymes sont associ & eacute;s n & eacute;gativement aux indicateurs de succ & egrave;s en mati & egrave;re de financement, une fois l'universit & eacute; d'origine prise en compte.

ABSTRACT Startups face a trade-off between short-term profitability and long-term growth. Their cash flows are said to follow a so-called J-curve. The shape of the curve depends on investors’ financing capacity: their ability to sustain prolonged periods of negative cash flow. US venture capitalists are often believed to have greater financing capacity. We examine a large Swedish dataset with detailed cash flow information. Swedish startups backed by US venture capitalists experience deeper J-curves, with larger short-term losses and higher long-term sales, relative to those backed by non-US venture capitalists. These results are consistent with US venture capitalists having greater financing capacity: they can provide more funding directly and have better access to later-stage investors.

Abstract This article examines how the adoption of AI technologies is transforming the venture capital industry. Leveraging interviews with industry practitioners who are actively working on the adoption of AI tools, it develops a critical outlook on the likely changes awaiting the industry. AI tools accelerate the sourcing and due diligence of venture deals. However, the final authority to make investment decisions remains with humans. The article identifies socially grounded conviction and gut feelings as two key human proficiencies that AI systems struggle to replicate. Relationships embedded in their professional networks also allow venture capitalists to provide value-added support to their founders in ways that cannot be easily replaced by AI systems. As AI systems are adopted industry-wide, they will broaden founders’ access to funding and shift market power away from investors. It is not the AI infrastructure but, rather, human proficiencies, such as socially grounded conviction, gut feeling, and networks, that will allow venture capital firms to competitively differentiate themselves.

Start-ups with female founders typically raise less money than their male counterparts. Prior literature explores investor demand and finds evidence of assortative matching, where investors prefer to invest in entrepreneurs of their own gender. In the context of equity crowdfunding, we examine the supply side of the gender funding gap, asking how female and male founders anticipate different investor demand. We develop an assortative matching theory that generates four benchmark predictions, namely that female founders (i) ask for less funding, (ii) have the same campaign success probability, (iii) receive less funding if successful, and (iv) have the same overfunding ratio, defined as the ratio of funding received over funding requested. Leveraging proprietary data from a UK equity crowdfunding platform that includes both successful and unsuccessful ventures, the evidence matches the first three predictions, also finding that all-female teams have larger funding gaps than mixed-gender teams. For the overfunding ratio, we find that mixedgender (all-female) teams have higher (lower) overfunding ratios than the all-male benchmark. We also find that female investors fund mixed-gender teams relatively more, whereas male investors give disproportionately less to all-female teams. Gender gaps increase for more capital-intensive ventures.

Does doing more deals together always strengthen investor relationships? Based on the relationships of the top 50 US venture capital firms, this paper focuses on the strengths of relationships and their dynamic evolution. Empirical estimates indicate that having a deeper relationship leads to fewer, not more future coinvestments. Moreover, deeper relationships lead to lower exit performance, even after controlling for endogeneity. Interestingly, deeper relationships first lead to lower performance, and subsequently lead to a slowdown in the relationship intensity. Relationship effects are more negative for VC firms with less central network positions, and for deals made in “hot” investment markets.

Universities generate breakthrough commercial technology, yet controversy persists regarding the optimal ownership stake they should retain in spin-outs commercializing these discoveries. This paper examines if higher university stakes inhibit spin-outs from raising venture capital funding. The analysis is based on a formal theory of spin-out fundraising, and draws on detailed administrative ownership data from spin-outs in the United Kingdom. Using an instrumental variable based on precedents set by prior spin-outs within a university, we find evidence that university stakes are a barrier to academic entrepreneurship, consistent with weakened founder incentives to raise venture capital. This effect is concentrated in universities that historically had higher university stakes.

Using UK data on regulatory FinTech Sandboxes, we examine both their direct effect on participant companies, and their indirect effects on the broader ecosystem. We show that previously documented direct fundraising effects are not robust to heterogeneous treatment estimation methodologies like Callaway and Sant'Anna (2021). Instead of direct fundraising effects, we find that Sandbox participation has indirect effects on the FinTech ecosystem. Specifically, we find positive fundraising effects for UK startups outside the Sandbox in industries affected by entry into the regulatory Sandbox.

This paper re-examines the role of investor power in a model of staged equity financing. It shows how the usual effect where market power reduces valuations can be reversed in later rounds. Once they become insiders, powerful investors may use their market power to increase, not decrease valuations. The critical determinant is whether the insider invests above or below the pro-rata threshold. Even though powerful investors initially lower valuations, companies prefer to bring them inside, to leverage their power in later financing rounds. The paper generates novel predictions about valuations and investor returns.

This paper analyzes the decision of growing startups to either scale up on their own or sell to an established company. The model shows that in a closed economy, the number of scaleups is efficient. In an open economy, foreign buyers increase demand and raise acquisition prices. This stimulates startup formation but also encourages too many growing startups to sell instead of scale. In a dynamic equilibrium without externalities, foreign acquirers are a net benefit to the domestic ecosystem. Two model extensions identify conditions under which they can weaken it: (i) intergenerational externalities in the accumulation of scaleup experience and (ii) significant brain drain of serial entrepreneurs.

Understanding an entrepreneurial finance ecosystem requires an appreciation of how different investors interact with each other. Angels and venture capitalists constitute two very important investors in start-ups. We develop and empirically test hypotheses about the interactions between these two investor types. The focus is on the dynamics of the funding path of start-up companies. We ask whether angels and VCs are complements or substitutes, and also whether funding decisions are primarily investor- or company-led. Using a unique database from British Columbia, Canada, we show that angel and VCs are dynamic substitutes. An instrumental variable approach based on available tax credits for investors suggests that the substitutes relationship is company-led. The dynamic substitute pattern applies across the performance range for companies. It is more pronounced for casual angels and angel funds than for serial angels. Overall the evidence from the entrepreneurial finance ecosystem in British Columbia suggests the presence of parallel streams for angel and VC funding, with fewer transitions across streams than is traditionally assumed.

It is well known that start-ups with female founders often raise less money than their male counterparts; the question is, what drives this? We exploit the unique features of equity crowdfunding to disentangle the choices made by entrepreneurs and investors. We find that female teams set lower fundraising goals, are equally likely to achieve their minimum goal, and end up raising significantly less. Guided by a simple theory of optimal fundraising, we find that assortative matching (where investors prefer to invest in their own gender) can explain some but not all of the female funding gap. One interesting finding is that female start-ups wait longer before closing their campaigns, suggesting that they want to raise more than what they originally asked for. Overall, the analysis suggests that female founders ask for less, get less, but do not necessarily want less.

Abstract Beyond Covid‐19, there is a growing interest in what economic structures will be needed to face ongoing pandemics. In this paper, we focus on the diagnostic problem and examine a new paradigm of voluntary self‐testing by private individuals. We develop a dynamic model where individuals without symptoms face daily choices of either taking the risk of going out (to work and socialize), staying at home in self‐isolation, or using a test to verify whether they are infected before going out. Our central insight is that the equilibrium public infection risk falls when home‐based testing becomes cheaper and easier to use, even if they generate both false‐positive (type I error) and false‐negative (type II error) test outcomes. We also show that the presence of naïve individuals actually reduces the equilibrium infection risk in the economy. Overall our model shows that, even if inaccurate, home‐based tests are vital for an economy facing an ongoing pandemic.

Angel funding is often viewed as a stepping stone towards obtaining venture capital. An alternative perspective is that angel investors and venture capitalists are distinct investor types that rarely mix with each other. Using a unique database from British Columbia, Canada, we provide evidence that angel and venture capital funding are dynamic substitutes, not complements. This finding applies across the performance range. Using an instrumental variable approach based on tax credits, we find evidence of both company-led selection and investor-led treatment effects. The substitutes pattern is more pronounced for casual angels and angel funds than for serial angels.

Governments across the globe are eager to foster entrepreneurial ecosystems, yet there is no consensus on what policies to use. We develop a theory about the equilibrium consequences of two canonical types of entrepreneurship policies: policies that encourage entrepreneurs to found new ventures, and policies that encourage investors to fund new ventures. We distinguish between a short-term impact on current market activity, versus a long-term impact on future activity. Investing in entrepreneurial ventures requires tacit knowledge that is mainly acquired through prior entrepreneurial experience, implying that the supply of capital depends on successful entrepreneurs from prior generations. Recognizing this intergenerational linkage has a profound impact on the market equilibrium, and the effect of entrepreneurship policies. Our analysis identifies a rationale for using funding polices.

This paper examines how founders within start-up teams dynamically re-adjust their relative ownership stakes. It leverages a unique dataset from British Columbia, Canada, which contains detailed information on founder ownership over time. Two trade-offs between efficiency and fairness are identified, one at the time of founding, the other as the venture develops. Teams with a preference for fairness at the start, as witnessed by an equal division of founder shares, also exhibit a dynamic preference for fairness, as witnessed by a reluctance to change ownership over time. Relative founder stakes are more likely to change when a company raises investments. Larger rounds, and lower valuations are associated with bigger changes in relative founder stakes.

(1) Background: Cross-border venture capital (VC) investments play an important role in the scaling up of high-growth companies. However, policymakers worry that foreign VC investments transfer the majority of economic activity to the investor country. On the one hand, start-ups welcome the foreign capital, expertise, and networks that accompany cross-border investments. On the other hand, policymakers are concerned that cross-border investments predominantly benefit foreign economies and fail to develop the local entrepreneurial ecosystem. This paper describes a framework for how policymakers can develop a set of policies toward cross-border VC investments. (2) Methods: The paper examines available data and trends about the role of cross-border investing, focusing on Europe, Israel, and Canada. Then, the paper explains the underlying economic challenges and develops a policy framework. (3) Results: The analysis shows that in addition to policies that aim to attract foreign investors, there are also important policies for the development of the domestic VC market. The analysis encompasses policies that are both financial and non-financial in nature. (4) Conclusions: A core insight for policymakers is to retain a balance of initiatives, attracting foreign investors while simultaneously making sure to strengthen the country's domestic VC industry and innovation ecosystem. The mix of policies will adjust as the domestic ecosystem matures.

Do foreign venture capitalists help the domestic economy, or hamper it by slowing down growth, potentially moving economic activity away? This paper addresses this long-standing policy question by examining the differential effects of US venture capital investments on the growth of Swedish start-up companies. It finds that US venture capital results in more employment, not less. These findings continue to hold after controlling for endogenous selection effects. US investments are also accompanied by increases in local employment and start-up rates. The paper also examines effect on wages, sales, earnings, foreign subsidiaries, subsequent funding rounds, and exits. Overall there is no evidence that US venture capital investments hamper the domestic growth of Swedish companies.

We use equity crowdfunding data to ask how fundraising amounts can be explained by what entrepreneurs ask for, versus what investors want to invest. The analysis exploits unique features of crowdfunding where entrepreneurs not only set investment goals, but also chose when to close their campaigns. More experienced and more educated founder teams ask for more. Their campaigns succeed more often, and they raise more money. Female teams ask for less, are equally successful, yet raise significantly less. They also wait longer before closing campaigns, suggesting they want to raise more than what they originally asked for.