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  5. Entrepreneurial Finance, FinTech, and the Role of the Government
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Entrepreneurial Finance, FinTech, and the Role of the Government

Paper Session

Sunday, Jan. 7, 2024 8:00 AM - 10:00 AM (CST)

Marriott Rivercenter, Conference Room 8
Hosted By: Association of Financial Economists
  • Chair: Josh Lerner, Harvard Business School

The Entrepreneurial Finance of FinTech Firms and the Effect of Investments in FinTech Startups on the Performance of Corporate Investors

Thomas J. Chemmanur
,
Boston College
Michael B. Imerman
,
University of California-Irvine
Harshit Rajaiya
,
University of Ottawa
Qianqian Yu
,
Lehigh University

Abstract

We analyze the effect of corporate investments in FinTech startups on startup performance and on the future performance of investing firms. Corporate investment in FinTech startups is associated with greater successful exit likelihood; more and higher quality innovation; and higher inflow of high-quality inventors. We establish causality using an IV analysis. A stacked difference-in-differences analysis shows that such investments enhance the product market performance and equity market valuation of corporate investors belonging to the financial services sector, but not those in the non-financial sector. We show that formation of strategic alliances between investors and FinTech startups drive these performance improvements.

Venture Capital and Value Creation in the Product Market: Evidence from the Nielsen Retail Scanner Data

Xi Chen
,
University of Houston
Jingxuan Zhang
,
University of Alberta

Abstract

By constructing a novel dataset based on Nielsen Retail Scanner and VentureXpert, we study how venture capitalists (VCs) create value in the product market for the entrepreneurial firms backed by them. We document that, compared to non-VC-backed firms, VC-backed startups have more than doubled their sales and seized more nationwide market share in the five years following the first VC investment. A further decomposition indicates that VC-backed firms achieve the growth in sales and market share by lowering their product prices. In addition, subsequent to the first VC investment, VC-backed firms enlarge their product portfolios by introducing new products and establishing new product lines, and they expand their products to more stores and geographic locations. Using the limited partner return as an instrument for the supply of VC financing, we show that the above effects are causal. We document heterogeneous value creation effects of VC financing for firms with different market share and for firms with different geographic proximity to the lead VC investors. This suggests that, apart from providing capital, VCs also add value to startups by directing their marketing strategy and monitoring their operations.

The Dance Between Government and Private Investors: Public Entrepreneurial Finance around the Globe

Jessica Bai
,
Harvard Business School
Shai Bernstein
,
Harvard Business School
Abhishek Dev
,
Yale University
Josh Lerner
,
Harvard Business School

Abstract

This paper examines the interaction between governments and private capital investors when financing early-stage ventures. We first provide a simple conceptual framework to explore when collaboration between governments and private investors is likely to emerge. Using hand-collected data on 755 programs worldwide, we find that government programs frequently involve private capital investors. Collaboration is greater when governments are more effective, when programs target earlier-stage companies, and when the local private venture market is more developed. Such collaborations mostly occur through joint equity investments and matching-funds requirements. These findings underscore the importance of government synergies with local private capital markets.

Discussant(s)
Manasa Gopal
,
Georgia Institute of Technology
Joan Farre-Mensa
,
University of Illinois-Chicago
Onur Bayar
,
University of Texas-San Antonio
JEL Classifications
  • G2 - Financial Institutions and Services
  • O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights