Financing Entrepreneurial Experimentation
Chapter in NBER book Innovation Policy and the Economy, Volume 16 (2016), Josh Lerner and Scott Stern, editors (p. 1 - 23)
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.
Document Object Identifier (DOI): 10.1086/684983This chapter first appeared as NBER working paper w21278, Financing Entrepreneurial Experimentation, Ramana Nanda, Matthew Rhodes-Kropf
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