[ { "id": "authors:93j1g-0rd67", "collection": "authors", "collection_id": "93j1g-0rd67", "cite_using_url": "https://resolver.caltech.edu/CaltechAUTHORS:20221115-640640900.4", "type": "article", "title": "Private or Public Equity? The Evolving Entrepreneurial Finance Landscape", "author": [ { "family_name": "Ewens", "given_name": "Michael", "clpid": "Ewens-M" }, { "family_name": "Farre-Mensa", "given_name": "Joan", "orcid": "0000-0003-0401-9107", "clpid": "Farre-Mensa-Joan" } ], "abstract": "The US entrepreneurial finance market has changed dramatically over the last two decades. Entrepreneurs who raise their first round of venture capital retain 30% more equity in their firm and are more likely to control their board of directors. Late-stage start-ups are raising larger amounts of capital in the private markets from a growing pool of traditional and new investors. These private market changes have coincided with a sharp decline in the number of firms going public\u2014and when firms do go public, they are older and have raised more private capital. To understand these facts, we provide a systematic description of the differences between private and public firms. Next, we review several regulatory, technological, and competitive changes affecting both start-ups and investors that help explain how the trade-offs between going public and staying private have changed. We conclude by listing several open research questions.", "doi": "10.1146/annurev-financial-101821-121115", "issn": "1941-1367", "publisher": "Annual Reviews", "publication": "Annual Review of Financial Economics", "publication_date": "2022-11", "volume": "14", "pages": "271-293" }, { "id": "authors:5qxf0-4s371", "collection": "authors", "collection_id": "5qxf0-4s371", "cite_using_url": "https://resolver.caltech.edu/CaltechAUTHORS:20210714-161615062", "type": "article", "title": "Venture capital contracts", "author": [ { "family_name": "Ewens", "given_name": "Michael", "clpid": "Ewens-M" }, { "family_name": "Gorbenko", "given_name": "Alexander", "clpid": "Gorbenko-Alexander" }, { "family_name": "Korteweg", "given_name": "Arthur", "orcid": "0000-0002-1941-4655", "clpid": "Korteweg-Arthur" } ], "abstract": "We estimate the impact of venture capital (VC) contract terms on startup outcomes and the split of value between the entrepreneur and investor, accounting for endogenous selection via a novel dynamic search-and-matching model. The estimation uses a new, large data set of first financing rounds of startup companies. Consistent with efficient contracting theories, there is an optimal equity split between agents, which maximizes the probability of success. However, venture capitalists (VCs) use their bargaining power to receive more investor-friendly terms compared to the contract that maximizes startup values. Better VCs still benefit the startup and the entrepreneur due to their positive value creation. Counterfactuals show that reducing search frictions shifts the bargaining power to VCs and benefits them at the expense of entrepreneurs. The results show that the selection of agents into deals is a first-order factor to take into account in studies of contracting.", "doi": "10.1016/j.jfineco.2021.06.042", "issn": "0304-405X", "publisher": "Elsevier", "publication": "Journal of Financial Economics", "publication_date": "2022-01", "series_number": "1", "volume": "143", "issue": "1", "pages": "131-158" }, { "id": "authors:3vm47-f4r11", "collection": "authors", "collection_id": "3vm47-f4r11", "cite_using_url": "https://resolver.caltech.edu/CaltechAUTHORS:20200522-122829220", "type": "article", "title": "The Deregulation of the Private Equity Markets and the Decline in IPOs", "author": [ { "family_name": "Ewens", "given_name": "Michael", "clpid": "Ewens-M" }, { "family_name": "Farre-Mensa", "given_name": "Joan", "clpid": "Farre-Mensa-Joan" } ], "abstract": "The deregulation of securities laws\u2014in particular the National Securities Markets Improvement Act (NSMIA) of 1996\u2014has increased the supply of private capital to late-stage private startups, which are now able to grow to a size that few private firms used to reach. NSMIA is one of a number of factors that have changed the going-public versus staying-private trade-off, helping bring about a new equilibrium where fewer startups go public, and those that do are older. This new equilibrium does not reflect an initial public offering (IPO) market failure. Rather, founders are using their increased bargaining power vis-\u00e0-vis investors to stay private longer.", "doi": "10.1093/rfs/hhaa053", "issn": "0893-9454", "publisher": "Oxford University Press", "publication": "Review of Financial Studies", "publication_date": "2020-12", "series_number": "12", "volume": "33", "issue": "12", "pages": "5463-5509" }, { "id": "authors:dtstb-tts79", "collection": "authors", "collection_id": "dtstb-tts79", "cite_using_url": "https://resolver.caltech.edu/CaltechAUTHORS:20171116-152128725", "type": "article", "title": "Are Early Stage Investors Biased Against Women?", "author": [ { "family_name": "Ewens", "given_name": "Michael", "clpid": "Ewens-M" }, { "family_name": "Townsend", "given_name": "Richard R.", "clpid": "Townsend-R-R" } ], "abstract": "We study whether early stage investors have gender biases using a proprietary data set from AngelList that allows us to observe private interactions between investors and fundraising startups. We find that male investors express less interest in female entrepreneurs compared to observably similar male entrepreneurs. In contrast, female investors express more interest in female entrepreneurs. These findings do not appear to be driven by within-gender screening/monitoring advantages or gender differences in risk preferences. Moreover, the male-led startups that male investors express interest in do not outperform the female-led startups they express interest in\u2014they underperform. Overall, the evidence is consistent with gender biases.", "doi": "10.1016/j.jfineco.2019.07.002", "issn": "0304-405X", "publisher": "Elsevier", "publication": "Journal of Financial Economics", "publication_date": "2020-03", "series_number": "3", "volume": "135", "issue": "3", "pages": "653-677" }, { "id": "authors:mpr9v-6db95", "collection": "authors", "collection_id": "mpr9v-6db95", "cite_using_url": "https://resolver.caltech.edu/CaltechAUTHORS:20180822-111107478", "type": "article", "title": "Managing Performance Signals Through Delay: Evidence from Venture Capital", "author": [ { "family_name": "Chakraborty", "given_name": "Indraneel", "clpid": "Chakraborty-I" }, { "family_name": "Ewens", "given_name": "Michael", "clpid": "Ewens-M" } ], "abstract": "This paper examines whether agency conflicts during venture capital (VC) fundraising impact investment behavior. Using novel investment-level decisions of VCs in the process of raising new funds, we find that venture capitalists take actions hidden from their investors\u2014i.e., limited partners (LPs)\u2014that delay revealing negative information about VC fund performance until after a new fund is raised. After fundraising is complete, write-offs double and reinvestments in relatively worse-off entrepreneurial firms increase. We find that these observations cannot be explained by strategic bundling of news or effort constraints due to the newly raised fund. Funds with both long and short fundraising track record exhibit this behavior and the delay is costly for fund investors (LPs). This strategic delay shows that fundraising incentives have real impacts on VC fund investment decisions, which are often difficult for LPs to observe.", "doi": "10.1287/mnsc.2016.2662", "issn": "0025-1909", "publisher": "INFORMS", "publication": "Management Science", "publication_date": "2018-06", "series_number": "6", "volume": "64", "issue": "6", "pages": "2875-2900" }, { "id": "authors:b9bqf-7hs04", "collection": "authors", "collection_id": "b9bqf-7hs04", "cite_using_url": "https://resolver.caltech.edu/CaltechAUTHORS:20180330-124840950", "type": "article", "title": "Cost of Experimentation and the Evolution of Venture Capital", "author": [ { "family_name": "Ewens", "given_name": "Michael", "clpid": "Ewens-M" }, { "family_name": "Nanda", "given_name": "Ramana", "clpid": "Nanda-R" }, { "family_name": "Rhodes-Kropf", "given_name": "Matthew", "clpid": "Rhodes-Kropf-M" } ], "abstract": "We study how technological shocks to the cost of starting new businesses have led the venture capital model to adapt in fundamental ways over the prior decade. We both document and provide a framework to understand the changes in the investment strategy of venture capitalists (VCs) in recent years \u2014 an increased prevalence of a \"spray and pray\" investment approach \u2014 where investors provide a little funding and limited governance to an increased number of startups that they are more likely to abandon, but where initial experiments significantly inform beliefs about the future potential of the venture. This adaptation and related entry by new financial intermediaries has led to a disproportionate rise in innovations where information on future prospects is revealed quickly and cheaply, and reduced the relative share of innovation in complex technologies where initial experiments cost more and reveal less.", "doi": "10.1016/j.jfineco.2018.03.001", "issn": "0304-405X", "publisher": "Elsevier", "publication": "Journal of Financial Economics", "publication_date": "2018-06", "series_number": "3", "volume": "128", "issue": "3", "pages": "422-442" }, { "id": "authors:23yqx-fre12", "collection": "authors", "collection_id": "23yqx-fre12", "cite_using_url": "https://resolver.caltech.edu/CaltechAUTHORS:20180319-140841345", "type": "article", "title": "Founder Replacement and Startup Performance", "author": [ { "family_name": "Ewens", "given_name": "Michael", "clpid": "Ewens-M" }, { "family_name": "Marx", "given_name": "Matt", "clpid": "Marx-M" } ], "abstract": "We provide causal evidence that venture capitalists (VCs) improve the performance of their portfolio companies by replacing founders. Using a database of venture capital financings augmented with hand-collected founder turnover events, we exploit shocks to the supply of outside executives via 14 states' changes to non-compete laws from 1995 to 2016. Naive regressions of startup performance on replacement suggest a negative correlation that may reflect negative selection. Indeed, instrumented regressions reverse the sign of this effect, suggesting that founder replacement instead improves performance. The evidence points to the replacement of founders as a specific mechanism by which VCs add value.", "doi": "10.1093/rfs/hhx130", "issn": "0893-9454", "publisher": "Oxford University Press", "publication": "Review of Financial Studies", "publication_date": "2018-04-01", "series_number": "4", "volume": "31", "issue": "4", "pages": "1532-1565" } ]