Portfolio Size and Information Disclosure: An Analysis of Startup Accelerators

33 Pages Posted: 6 Sep 2012 Last revised: 19 Mar 2015

Jin-Hyuk Kim

University of Colorado at Boulder

Liad Wagman

Illinois Institute of Technology - Stuart School of Business, IIT

Date Written: October 16, 2014

Abstract

We study the information-gathering role of a startup accelerator and consider the accelerator’s incentives to choose a portfolio size and disclose information about participating ventures. We show that in a rational-expectations equilibrium, the resultant portfolio size is smaller than the first-best (efficient) level, consistent with some real-world observations. We further show that when some signals are uninformative and the portfolio consists of mostly high-quality ventures, the accelerator may choose to disclose only positive signals (and conceal negative signals) about its portfolio firms — a strategy we refer to as partial disclosure. Moreover, coupled with pursuing this strategy of partial disclosure, we demonstrate that the accelerator may possess incentives to exit its portfolio firms early.

Keywords: Startup accelerators, early-stage financing, portfolio size, information disclosure.

JEL Classification: D82, G24, G32

Suggested Citation

Kim, Jin-Hyuk and Wagman, Liad, Portfolio Size and Information Disclosure: An Analysis of Startup Accelerators (October 16, 2014). Midwest Finance Association 2013 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2142262 or http://dx.doi.org/10.2139/ssrn.2142262

Jin-Hyuk Kim

University of Colorado at Boulder ( email )

Campus Box 256
Boulder, CO 80309
United States

Liad Wagman (Contact Author)

Illinois Institute of Technology - Stuart School of Business, IIT ( email )

565 W Adams St Suite 452
Chicago, IL 60661
United States
7739809883 (Phone)

HOME PAGE: http://lwagman.org

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