Was There Too Little Entry During the Dot Com Era?
Brent D. Goldfarb
University of Maryland - Robert H. Smith School of Business
University of Maryland
David A. Miller
University of California, San Diego - Department of Economics
April 24, 2006
Robert H. Smith School Research Paper No. RHS 06-029
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.
Number of Pages in PDF File: 59
Keywords: Dot Com, Herding, Cascades, Venture Capital, Expectations, Speculation
JEL Classification: G14, G24, D83, D84, L80, M13, N80, 030
Date posted: December 20, 2005