Was There Too Little Entry During the Dot Com Era?

59 Pages Posted: 20 Dec 2005  

Brent D. Goldfarb

University of Maryland - Robert H. Smith School of Business

David Kirsch

University of Maryland

David A. Miller

University of California, San Diego - Department of Economics

Date Written: April 24, 2006

Abstract

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

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

Brent D. Goldfarb (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-9672 (Phone)
301-314-8787 (Fax)

David Kirsch

University of Maryland ( email )

College Park
College Park, MD 20742
United States

David A. Miller

University of California, San Diego - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-822-0632 (Phone)

HOME PAGE: http://weber.ucsd.edu/~d9miller

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