59 Pages Posted: 20 Dec 2005
Date Written: April 24, 2006
We present four stylized facts about the Dot Com Era: (1) there was a widespread belief in a Get Big Fast business strategy; (2) the increase and decrease in public and private equity investment was most prominent in the internet and information technology sectors; (3) the survival rate of dot com firms is on par or higher than other emerging industries; and (4) firm survival is independent of private equity funding. To connect these findings we offer a herding model that accommodates a divergence between the information and incentives of venture capitalists and their investors. A Get Big Fast belief cascade may have led to overly focused investment in too few internet startups and, as a result, too little entry.
Keywords: Dot Com, Herding, Cascades, Venture Capital, Expectations, Speculation
JEL Classification: G14, G24, D83, D84, L80, M13, N80, 030
Suggested Citation: Suggested Citation
Goldfarb, Brent D. and Kirsch, David and Miller, David A., Was There Too Little Entry During the Dot Com Era? (April 24, 2006). Robert H. Smith School Research Paper No. RHS 06-029. Available at SSRN: https://ssrn.com/abstract=899100 or http://dx.doi.org/10.2139/ssrn.899100