This paper analyzes how US universities contribute to the quantity and quality of VC-backed immigrant entrepreneurship in the US. Using a novel data set that identifies immigration status and ...education history for the near-universe of VC-backed founders in the US, we document several interrelated facts. First, immigrants contribute disproportionately to US VC-backed entrepreneurship, accounting for approximately 20 % of VC-backed companies. More than 75 % of these immigrant entrepreneurs obtained post-secondary education in the US, which suggests that higher education represents a primary entry channel for foreign entrepreneurial talent into the country. Given these facts, we assess how universities shape both the geographic distribution and the quality of immigrant entrepreneurship. Close to 40 % of US-educated immigrants start a company in the state of their alma mater, suggesting that place of education substantially impacts immigrant entrepreneurs' startup location choice. Regarding firm quality, immigrant founders are also more likely to found financially successful and scientifically innovative startups than their US-born counterparts. Altogether, the results suggest that foreign students educated in US universities substantially contribute to local and national VC-backed entrepreneurship, thereby identifying higher education's global scope as a potential tool to attract entrepreneurial talent and encourage entrepreneurial growth.
•75% of VC-backed immigrant entrepreneurs arrived in the United States via higher education.•We show that both immigrant and native entrepreneurs are very likely to start companies in the same state that they received their final postsecondary education degree. This result highlights universities’ role in contributing to the quantity of high-growth-potential immigrant entrepreneurship in their respective local economies.•We show suggestive evidence that immigrant entrepreneurship does not seem to crowd out native entrepreneurship.•We show that the influx of immigrant entrepreneurs does not compromise the quality of VC-backed companies that get funded. Specifically, we show that companies started by immigrant founders are more likely to achieve financial success and produce patents.
This paper examines how organizational structure affects behavior and outcomes, studying the performance of different types of venture capital organizations. We find a strong positive relationship ...between the degree of specialization by individual venture capitalists at a firm and its success. When the individual investment professionals are highly specialized themselves, the marginal effect of increasing overall firm specialization is much weaker. The poorer performance by generalists appears to be due to both an inefficient allocation of funding across industries and poor selection of investments within industries. Venture capital organizations with more experience tend to outperform those with less experience.
Corporate Governance and Equity Prices Gompers, Paul; Ishii, Joy; Metrick, Andrew
The Quarterly journal of economics,
02/2003, Volume:
118, Issue:
1
Journal Article
Peer reviewed
Open access
Shareholder rights vary across firms. Using the incidence of 24 governance rules, we construct a "Governance Index" to proxy for the level of shareholder rights at about 1500 large firms during the ...1990s. An investment strategy that bought firms in the lowest decile of the index (strongest rights) and sold firms in the highest decile of the index (weakest rights) would have earned abnormal returns of 8.5 percent per year during the sample period. We find that firms with stronger shareholder rights had higher firm value, higher profits, higher sales growth, lower capital expenditures, and made fewer corporate acquisitions.
The Venture Capital Revolution Gompers, Paul; Lerner, Josh
The Journal of economic perspectives,
04/2001, Volume:
15, Issue:
2
Journal Article
Peer reviewed
Open access
Venture capital has emerged as an important intermediary in financial markets, providing capital to young high-technology firms that might have otherwise gone unfunded. Venture capitalists have ...developed a variety of mechanisms to overcome the problems that emerge at each stage of the investment process. At the same time, the venture capital process is also subject to various pathologies from time to time, which can create problems for investors or entrepreneurs. This article reviews the recent empirical literature on these organizations and points out area where further research is needed.
Gender Gaps in Venture Capital Performance Gompers, Paul A.; Mukharlyamov, Vladimir; Weisburst, Emily ...
Journal of financial and quantitative analysis,
03/2022, Volume:
57, Issue:
2
Journal Article
Peer reviewed
We explore gender differences in performance in a comprehensive sample of venture capital investments in the United States. Investments by female venture capital investors have significantly lower ...success rates than investments by their male colleagues when controlling for personal characteristics, including employment and educational history, and portfolio companies’ characteristics. The gender differences in investment outcomes are not due to female investors being less skilled but, rather, are largely attributable to female investors receiving less benefit from the track records of their colleagues. Performance differences disappear in older, larger firms and firms with other female investors. This supports the view that formal feedback mechanisms and hierarchies are potentially useful in ameliorating the female performance gap.
Private equity and Covid-19 Gompers, Paul A.; Kaplan, Steven N.; Mukharlyamov, Vladimir
Journal of financial intermediation,
07/2022, Volume:
51
Journal Article
Peer reviewed
Open access
We survey more than 200 private equity (PE) managers from firms with $1.9 trillion of assets under management (AUM) about their portfolio performance, decision-making and activities during the ...Covid-19 pandemic. Given that PE managers have significant incentives to maximize value, their actions during the pandemic should indicate what they perceive as being important for both the preservation and creation of value. PE managers believe that 40% of their portfolio companies are moderately negatively affected and 10% are very negatively affected by the pandemic. The private equity managers—both investment and operating partners—are actively engaged in the operations, governance, and financing in all of their current portfolio companies. These activities are more intensively pursued in those companies that have been more severely affected by the Covid-19 pandemic. As a result of the pandemic, they expect the performance of their existing funds to decline. They are more pessimistic about that decline than the venture capitalists (VCs) surveyed in Gompers et al. (2021). Despite the pandemic, private equity managers are seeking new investments. Rather than focusing on cost cutting, PE investors place a much greater weight on revenue growth for value creation. Relative to the 2012 survey results reported in Gompers, Kaplan, and Mukharlyamov (2016), they appear to give a larger equity stake to management teams and target somewhat lower returns.
Venture Capitalists and COVID-19 Gompers, Paul; Gornall, Will; Kaplan, Steven N. ...
Journal of financial and quantitative analysis,
11/2021, Volume:
56, Issue:
7
Journal Article
Peer reviewed
Open access
We survey over 1,000 venture capitalists (VCs) on how the COVID-19 pandemic has affected their decisions and investments. Despite the historical importance of in-person meetings, VCs do not report ...difficulty finding quality entrepreneurs or major changes in time allocation. They do report difficulty in evaluating deals, more investor-friendly terms, and a decreased investment rate, with about one-sixth of VCs reporting pressure from limited partners to conserve capital. Although aggregate returns are largely unchanged, there is high dispersion both within and across funds. A follow-up survey shows faster-than-expected recovery in deal volume, terms, and returns.
This paper analyzes institutional investors' demand for stock characteristics and the implications of this demand for stock prices and returns. We find that “large” institutional investors nearly ...doubled their share of the stock market from 1980 to 1996. Overall, this compositional shift tends to increase demand for the stock of large companies and decrease demand for the stock of small companies. The compositional shift can, by itself, account for a nearly 50 percent increase in the price oflarge-company stock relative to small-company stock and can explain part of the disappearance of the historical small-company stock premium.
A large body of literature suggests that firm-level stock prices “underreact” to news about future cash flows; i.e., shocks to a firm's expected cash flows are positively correlated with shocks to ...expected returns on its stock. We examine the joint behavior of returns, cash-flow news, and trading between individuals and institutions. Institutions buy shares from (sell shares to) individuals in response to positive (negative) cash-flow news, thus exploiting the underreaction phenomenon. Institutions are not simply following price momentum strategies: When price goes up (down) in the absence of any cash-flow news, institutions sell shares to (buy shares from) individuals. Although institutions are trading in the “right” direction, institutions as a group outperform individuals by only 1.44% per annum before transaction and other costs, because they are extremely conservative in deviating from the value-weighted market index.
This paper describes board size and composition and investigates the role of venture capital in a sample of 1,116 firms' initial public offerings. First, firms backed by venture capital have fewer ...insider and instrumental directors and more independent outsiders. Second, we consider board composition as the outcome of a bargain between the CEO and outside shareholders. Representation of independent outsiders on the board decreases with the power of the CEO—tenure and voting control—and increases with the power of outside investors—venture capital backing and venture firm reputation. Third, within the sample of firms financed by venture capital and also consistent with a bargaining model, the probability that a founder remains as CEO is decreasing in venture firm reputation. Finally, we examine the influence of venture capital backing and board structure on firm outcomes in the 10 years after the initial public offering.
PDF
