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Entrepreneurial Finance / Venture Capital

Paper Session

Saturday, Jan. 6, 2018 2:30 PM - 4:30 PM

Loews Philadelphia, Regency Ballroom C1
Hosted By: American Finance Association
  • Chair: Arthur Korteweg, University of Southern California

The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship

Kyle Herkenhoff
University of Minnesota
Gordon Phillips
Dartmouth College
Ethan Cohen-Cole
Econ One Research


How does consumer credit access impact job
ows, earnings, and entrepreneurship?
To answer this question, we build a new administrative dataset which links individ-
ual employment and entrepreneur tax records to TransUnion credit reports, and we
exploit the discrete increase in consumer credit access following bankruptcy
ag re-
moval. After
ag removal, individuals
ow into self-employment. New entrants earn
more, borrow signicantly using unsecured and secured consumer credit, and are more
likely to become an employer business. In addition, after
ag removal, non-employed
and self-employed individuals are more likely to nd unemployment-insured \formal"
jobs at larger rms that pay greater wages. These estimates imply that rms believe
previously bankrupt workers are 3.8% less productive than non-bankrupt workers, on
average. These results suggest that consumer credit access matters for each stage of
entrepreneurship and that credit-checks may be limiting formal sector employment

Measuring Institutional Investors’ Skill at Making Private Equity Investments

Daniel Cavagnaro
California State University-Fullerton
Berk Sensoy
Ohio State University
Yingdi Wang
California State University-Fullerton
Michael Weisbach
Ohio State University


Using a large sample of institutional investors’ investments in private equity funds raised between 1991 and 2011, we estimate the extent to which investors’ skill affects their returns. Bootstrap analyses show that the variance of actual performance is higher than would be expected by chance, suggesting that some investors consistently outperform. Extending the Bayesian approach of Korteweg and Sorensen (2017), we estimate that a one standard deviation increase in skill leads to an increase in annual returns of between one and two percentage points. These results are stronger in the earlier part of the sample period and for venture funds.

Volatility and Venture Capital

Ryan Peters
Tulane University


The performance of venture capital (VC) investments load positively on shocks to aggregate idiosyncratic (cross-sectional) return volatility. I document this novel source of risk at the asset-class, fund, and portfolio-company levels. The positive relation between VC performance and volatility is driven by the option-like structure of VC investments, especially by VCs' contractual option to invest in subsequent (follow-on) rounds. At the asset-class level, shocks to aggregate volatility explain a substantial fraction of VC returns. At the fund level, consistent with the follow-on investment channel, this exposure is concentrated in years two through four of fund life and in early-stage VC funds, which have more embedded follow-on investment options. For VC-backed portfolio companies, volatility shocks correlate with faster and more frequent follow-on investment. The level of volatility at the time of initial investment has no relation with future performance, consistent with competitive markets. These results imply that the option-like features of VC investments are first-order determinants of risk in VC.

Are Early Stage Investors Biased Against Women?

Michael Ewens
California Institute of Technology
Richard R. Townsend
University of California-San Diego


We examine whether male investors are biased against female entrepreneurs. To do so, we use a proprietary dataset from AngelList covering fundraising startups. We find that female founders are less successful with male investors compared to observably similar male founders. In contrast, the same female founders are more successful than male founders with female investors. The results do not appear to be driven by differences across founder gender in startup quality, sector focus, or risk. Given that investors are predominately male, our results suggest that an increase in female investors is likely necessary to support an increase in female entrepreneurship.
Josh Lerner
Harvard University
Morten Sorensen
Copenhagen Business School
Will Gornall
University of British Columbia
Tania Babina
Columbia University
JEL Classifications
  • G2 - Financial Institutions and Services