The Acquisition Option and Startup Innovations

(Job Market Paper)

I study a novel channel affecting startup innovations: how acquisition and venture capital markets shape startups’ innovation incentives. A startup’s catering incentives increase as an exit through acquisition becomes relatively more attractive. My theoretical framework demonstrates that as the availability of venture capital increases, startups’ catering incentives decrease. To provide evidence of this channel, I develop novel text-based measures suitable for measuring changes in the direction and complementarity of startups’ innovations, thereby expanding the scope of innovation activity studied in prior literature. Startups innovate more in directions with high acquisition activity, and following an exogenous increase in local capital supply, startups introduce innovations that are more independent of potential acquirers’ assets. Overall, my results suggest that the availability of external financing is key to understanding startup firms’ innovation incentives and, ultimately, innovation output.

Work in Progress

The Anatomy of Angel Investing – Evidence from Sweden
Joint with Laurent Bach, Ramin Baghai, and Per Strömberg