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Financing Risk and InnovationRamana NandaHarvard University - Entrepreneurial Management Unit Matthew Rhodes-KropfHarvard Business School - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER) December 22, 2011 Harvard Business School Entrepreneurial Management Working Paper No. 11-013 Abstract: Technological revolutions and waves of creative destruction are associated with new ventures and the destruction of mature firms, but also with the failure of numerous startups, suggesting a time of increased experimentation in the economy. We provide a model of investment into new ventures that demonstrates why some places, times and industries should be associated with a greater degree of experimentation by investors. Investors respond to increases in the forecasted probability of future funding by funding more innovative ideas. We propose that extremely novel technologies may need ‘hot’ financial markets to get through the initial period of discovery or diffusion.
Number of Pages in PDF File: 51 Keywords: Innovation, Venture Capital, Investing, Experimentation, Market Cycles, Financing Risk JEL Classification: G24, O31 working papers seriesDate posted: August 13, 2010 ; Last revised: August 31, 2012Suggested CitationContact Information
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