NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financing Entrepreneurial Experimentation

Ramana Nanda, Matthew Rhodes-Kropf

Chapter in NBER book Innovation Policy and the Economy, Volume 16 (2016), Josh Lerner and Scott Stern, editors
Conference held April 14, 2015
Published in March 2016 by University of Chicago Press
© 2016 by the National Bureau of Economic Research
in NBER Book Series Innovation Policy and the Economy

The fundamental uncertainty of new technologies at their earliest stages implies that it is virtually impossible to know the true potential of a venture without learning about its viability through a sequence of investments over time. We show how this process of experimentation can be particularly valuable in the context of entrepreneurship because most new ventures fail completely, and only a few become extremely successful. We also shed light on important costs to this process of experimentation, and demonstrate how these can fundamentally alter both the rate and direction of startup innovation across industries, regions and periods of time.

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Document Object Identifier (DOI): https://doi.org/10.1086/684983

This chapter first appeared as NBER working paper w21278, Financing Entrepreneurial Experimentation, Ramana Nanda, Matthew Rhodes-Kropf
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