Abstract: I find noticeable bunching in venture capital (VC)-backed company valuations at $1 billion, the minimum threshold to be a so-called unicorn. I ask how VC-backed companies strategically inflate their valuations and why. Exploiting a unique practice whereby reported valuations include authorized but unissued stock options, VC-backed companies authorize more shares for future employee compensation to achieve unicorn status. Rank-and-file employees, one of the most important stakeholders of VC-backed companies, interpret unicorn status as a positive signal. Contrary to employees’ interpretation, however, inflating valuations to achieve unicorn status lowers the expected value of their stock options, raising concerns about the information asymmetry employees face.
Abstract: Is there a gender gap in the serial founding of VC-backed startups? We address this question by introducing a new empirical design that exploits differences in future funding outcomes for men and women who cofounded the textit{same} startup. We find substantial gender gaps, both on average and following failure or success of the current startup. Following failure, our estimates imply that women are 22.5 percent less likely to found another VC-backed startup compared to their cofounders who are men. Among those who do found another VC-backed firm, women raise 24.6 percent less capital. Moreover, the results of an outcome test show no gender difference in the success probabilities of subsequent startups, despite the large funding gap. The gender gaps that we observe appear to be driven by unequal treatment by investors and not by gender differences in quality or founder preferences. In fact, our analysis of potential supply-side channels reveals striking negative spillovers following investors’ experiences with textit{other} women-founded startups.
Discussant: Valentina Rutigliano, University of British Columbia
Abstract: We hypothesize and find evidence that banks use venture investments in fintech startups as a strategic approach to navigate fintech competition. We first document that banks’ venture investments have increasingly focused on fintech firms. We find that banks facing greater fintech competition are more likely to make venture investments in fintech startups. Banks target fintech firms that exhibit higher levels of asset complementarities with their own business. Finally, instrumental variable analyses show that venture investments increase the likelihood of operational collaborations and knowledge transfer between the investing bank and the fintech investee.
Discussant: Allen Hu, University of British Columbia
