Moving Beyond the Valley of Death: Regulation and Venture Capital Investments in Early-Stage Biopharmaceutical Firms

71 Pages Posted: 29 Oct 2018

See all articles by Yujin Kim

Yujin Kim

ShanghaiTech University - School of Entrepreneurship and Management

Chirantan Chatterjee

Indian Institute of Management, Ahmedabad

Matthew John Higgins

University of Utah - Department of Entrepreneurship & Strategy; National Bureau of Economic Research (NBER); Max Planck Institute for Innovation and Competition

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Date Written: October 2018

Abstract

Can regulation reduce risks associated with investing in early-stage firms? Using the passage of the European Orphan Drug Act (EU-ODA), we examine this question in the biopharmaceutical industry. We provide causal evidence that venture capitalists (VCs) are more likely to invest in early-stage firms operating in sub-fields disproportionately affected by EU-ODA. The switch to early-stage investments appears strongest among VCs that previously faced greater levels of information asymmetry. We also find that the level of syndication declined for early-stage investments and exit performance improved. We conclude discussing the implications of our findings for public policy, entrepreneurship and innovation.

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Suggested Citation

Kim, Yujin and Chatterjee, Chirantan and Higgins, Matthew John, Moving Beyond the Valley of Death: Regulation and Venture Capital Investments in Early-Stage Biopharmaceutical Firms (October 2018). NBER Working Paper No. w25202. Available at SSRN: https://ssrn.com/abstract=3274428

Yujin Kim (Contact Author)

ShanghaiTech University - School of Entrepreneurship and Management ( email )

100 Haike Rd
Pudong Xinqu, Shanghai
China

Chirantan Chatterjee

Indian Institute of Management, Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

HOME PAGE: http://https://www.iima.ac.in/web/faculty/faculty-profiles/chirantan-chatterjee

Matthew John Higgins

University of Utah - Department of Entrepreneurship & Strategy ( email )

1655 East Campus Center Dr.
Salt Lake City, UT 84112
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, Bayern 80539
Germany

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