VC Exits and Startup Innovations

This paper studies the direction of startups’ innovation efforts, particularly the role of venture capital in shaping the trajectory of startups’ innovation output. New text-based measures, constructed from patent and trademark data, outline the innovation network of the startups—informing about both the technological innovation path and the commercialization of innovations. The results show that startups gravitate toward innovation areas with more active exit markets. When venture capital (VC) supply exogenously increases and VC competition increases, startups’ commercialized innovations become less similar to incumbent firms’ innovation assets. The trajectory of patentable innovations adjusts, and startups cater less to attractive acquisition markets.

Who becomes a Business Angel?

Joint with Laurent Bach, Ramin Baghai, and Per Strömberg

The availability of external finance for early-stage enterprises is vital for entrepreneurship and innovation. Using data from Swedish administrative registries, we identify business angels, that is, individuals repeatedly financing startups, and characterize who among the general population eventually becomes a business angel. Angels are overwhelmingly drawn from the top 1% of the wealth distribution and are just as likely as other rich people to originate from wealthy families. However, angels have distinguishing characteristics compared to the rich in general. Angels are generally highly educated and have often chosen business-relevant degrees. Similarly, many angels have leadership experience from startups, public companies, or transactional (IPO, M&A, LBO) experience. Angels also have much higher general ability than even other very wealthy peers and relevant comparison groups. Their asset allocation is very biased towards the riskiest assets, suggesting unusually low levels of risk aversion and strong non-pecuniary investment motivations. Our analysis provides important insights for the design of policies encouraging the financing of early-stage ventures.