Hostname: page-component-76fb5796d-wq484 Total loading time: 0 Render date: 2024-04-26T15:12:46.113Z Has data issue: false hasContentIssue false
  • English
  • Français

Exploring the changing institutions of early-stage finance

Published online by Cambridge University Press:  14 September 2017

SCOTT SHANE  and
NICOS NICOLAOU
SCOTT SHANE*
Affiliation:
Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio, USA
NICOS NICOLAOU*
Affiliation:
Warwick Business School, University of Warwick, Coventry, UK
*
*Email: sas46@cwru.edu
**Email: nicos.nicolaou@wbs.ac.uk
Get access Rights & Permissions [Opens in a new window]

Abstract

Since the end of the shakeout following the bursting of the dot com bubble, we have seen substantial innovation in the institutions and organizational arrangements used to finance early-stage high growth technology companies. This paper will document the emergence of business accelerators, angel groups, micro venture capital funds and online equity crowdfunding platforms, and show the rapid growth in angel investing over this period. It will also document the corresponding movement away from traditional venture capital activity at the early stage of company development. The paper will explain how technological advance, specifically the decline in the cost of bringing a new software product to market, has driven this shift in the institutions of early-stage finance.

Type
Research Article
Information
Journal of Institutional Economics , Volume 14 , Special Issue 6: Special Issue on Innovation and Institutions From The Bottom Up , December 2018 , pp. 1121 - 1137
Copyright
Copyright © Millennium Economics Ltd 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ahlers, G., Cumming, D., Gunther, C. and Schweizer, D. (2015). ‘Signaling in equity crowdfunding’, Entrepreneurship Theory and Practice, 39 (4): 955–80.Google Scholar
Angel Capital Association (2015). ‘ACA Member Groups: 2015 demographics’, Angel Capital Association, available at www.angelcapitalassociation.org/data/Documents/2015ACAMemberDemographics07-20-15.pdf (accessed 10 August 2017).Google Scholar
Ayres, C. (1944). The Theory of Economic Progress, Chapel Hill, NC: University of North Carolina Press.Google Scholar
Barzel, Y. (1982). ‘Measurement costs and the organization of markets’, Journal of Law and Economics, 25 (1): 27–48.Google Scholar
Casson, M. (1982). The Entrepreneur: An Economic Theory, Totowa, NJ: Barnes and Noble Books.Google Scholar
Center for Venture Research (2015). ‘The angel investor market in 2015: a buyer's market’, available at https://paulcollege.unh.edu/sites/paulcollege.unh.edu/files/webform/Full%20Year%202015%20Analysis%20Report.pdf (accessed 10 August 2017).Google Scholar
Cook, J. (2014). ‘Shrinkage: number of VC professionals plummets 60% in past 10 years, funds decline 25%’, available at www.geekwire.com/2014/shrinkage-number-venture-capital-professionals-plummets-60-past-10-years-funds-decline-25/ (accessed 10 August 2017).Google Scholar
DiMasi, J. and Grabowski, H.. (2007). ‘The cost of biopharmaceutical R&D: is biotech different?’ Managerial & Decision Economics, 28: 469–79.Google Scholar
Goetz, J. (2016). ‘How unicorns grow’, Harvard Business Review, September–October, 28–30.Google Scholar
Guenther, C., Johan, D. and Schweizer, D. (forthcoming). ‘Is the crowd sensitive to distance? How investor decisions differ by investor type’, Small Business Economics.Google Scholar
Hathaway, I. (2016). ‘Accelerating growth: startup accelerator programs in the United States’, Brookings Institution, available at https://www.brookings.edu/research/accelerating-growth-startup-accelerator-programs-in-the-united-states/ available at https://www.brookings.edu/research/accelerating-growth-startup-accelerator-programs-in-the-united-states/ (accessed 10 August 2017).Google Scholar
Hodgson, G. (2015). Conceptualizing Capitalism: Institutions, Evolution, Future. Chicago, IL: University of Chicago Press.Google Scholar
Hudson, M. (2016). ‘Angel investments in the US – helping startups be successful’, Angel Capital Association, available at https://www.angelcapitalassociation.org/data/Documents/Resources/ACATaiwanSummitRev09-06-16.pdf (accessed 10 August 2017).Google Scholar
Kaji, S. (2015). ‘Small giants: the past, present, and future of micro VCs’, available at https://www.cbinsights.com/blog/past-present-future-micro-vc/ (accessed 10 August 2017).Google Scholar
Kingston, C. and Caballero, G.. (2009). ‘Comparing theories of institutional change’, Journal of Institutional Economics, 5 (2): 151–80.Google Scholar
Lambert, D. (2016). ‘Implications of the startup capital revolution for investors’, Presentation, October.Google Scholar
Lerner, J. and Schoar, A.. (2016). ‘The rise of the angel investor: a challenge to public policy’, The Third Way, available at www.thirdway.org/report/rise-of-the-angelinvestor-a-challenge-to-public-policy (accessed 10 August 2017).Google Scholar
Massolution (2015). ‘The Equity Crowdfunding Report’, available at http://reports.crowdsourcing.org/index.php?route=product/product&path=0_20&product_id=54 (accessed 10 August 2017).Google Scholar
McClure, D. (2014). ‘Changes in venture capital and building startup ecosystems’, available at www.slideshare.net/dmc500hats/building-startup-ecosystems-cairo-oct-2014 (accessed 10 August 2017).Google Scholar
National Venture Capital Association (2016). National Venture Capital Association Yearbook, Washington DC: NVCA.Google Scholar
Nelson, R. (2005). Technology, Institutions and Economic Growth, Cambridge, MA: Harvard University Press.Google Scholar
North, D. (1990). Institutions, Institutional Change and Economic Performance, Cambridge, UK: Cambridge University Press.Google Scholar
Simeonov, S. (2011). ‘Patterns of successful angel investing’, available at www.slideshare.net/simeons/patterns-of-successful-angel-investing-8306787/30-50x_vs_1000x_returns_cap80604020 (accessed 10 August 2017).Google Scholar
Stewart, J., Allison, P. and Johnson, R.. (2001). ‘Putting a price on biotechnology’, Nature Biotechnology, 19 (9): 813–17.Google Scholar
Stringham, E. (2002). ‘The emergence of the London Stock Exchange as a self-policing club’, Journal of Private Enterprise, 17 (2): 1–19.Google Scholar
Suster, M. (2011). ‘Understanding changes in the software and venture capital industries’, 29 June, available at https://bothsidesofthetable.com/understanding-changesin-the-software-venture-capital-industries-b69a7e3a1ec7#.o6tefmd6a (accessed 10 August 2017).Google Scholar
Suster, M. (2012). ‘Changes in the venture capital funding environment’, available at https://bothsidesofthetable.com/the-continued-changes-in-the-venture-climate-331c69cc4be4#.d286el90c (accessed 10 August 2017).Google Scholar
Willis, T. (2014). ‘Fred Wilson on the future of venture capital’, The Big Think, available at http://bigthink.com/cue-the-future/fred-wilson-on-the-future-of-venture-capital (accessed 10 August 2017).Google Scholar