Firm Dynamics and the Returns to Early-Stage Investment

54 Pages Posted: 13 Oct 2020 Last revised: 24 Jun 2022

See all articles by Katja Kisseleva

Katja Kisseleva

Frankfurt School of Finance & Management

Aksel Mjøs

Norwegian School of Economics (NHH) - Department of Finance

David T. Robinson

Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Date Written: June 24, 2022

Abstract

Most new firm formation reflects self-employment with little ambition for growth, but a tiny fraction of new firm starts are founded by entrepreneurs who go on to attract significant amounts of capital and grow dramatically. This paper uses detailed administrative records to measure the returns to investing in such companies. Returns are extremely right-skewed, more than has been previously recognized. Venture investors outperform others when we control for firm performance and investment round, much more so than without these controls, which highlights the importance of contracting and exit timing over other factors determining returns.

Keywords: returns, investment, entrepreneurship, venture capital, early-stage financing.

JEL Classification: G11, G23, G24, G32

Suggested Citation

Kisseleva, Katja and Mjøs, Aksel and Robinson, David T., Firm Dynamics and the Returns to Early-Stage Investment (June 24, 2022). ESMT Berlin Working Paper, Available at SSRN: https://ssrn.com/abstract=3680129 or http://dx.doi.org/10.2139/ssrn.3680129

Katja Kisseleva (Contact Author)

Frankfurt School of Finance & Management

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Aksel Mjøs

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

David T. Robinson

Fuqua School of Business, Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0120
United States
919-660-8023 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

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