Financial Distancing: How Venture Capital Follows the Economy Down and Curtails Innovation

Abstract

for research assistance and are grateful to Shai Bernstein and attendees of the Harvard Business School "COVID and entrepreneurship" brown-bag lunch for helpful comments. Lerner has received compensation from advising institutional investors in venture capital funds, venture capital groups, and governments designing policies relevant to venture capital. Lerner and Nanda thank the Division of Research and Faculty Development at HBS for financial support. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Financing entrepreneurship in times of crisis: Exploring the impact of COVID-19 on the market for entrepreneurial finance in the United Kingdom

“…This article provides important timely insights into the uncertainty caused by the crisis by using a novel source of real-time data to investigate this topic. From our analysis, the United Kingdom seems to be significantly affected but the order of magnitude is considerably lower than in countries such as China (Brown and Rocha, 2020) and broadly in line with other major entrepreneurial finance markets such as the United States (Howell et al, 2020). This greater resilience probably owes to the more established nature and dense networks of equity finance actors within the United Kingdom's entrepreneurial finance market compared to places like China.…”

“…The COVID-19 pandemic has created a significant systemic economic shock, surpassing that of the GFC in 2007-2008(Baker et al, 2020. Given its manifest importance to the economy, how the entrepreneurial finance market is affected by this chronic uncertainty will have a major and long-lasting effect on entrepreneurial and innovative activity for years to come (Howell et al, 2020). This article provides important timely insights into the uncertainty caused by the crisis by using a novel source of real-time data to investigate this topic.…”

“…Indeed, in recognition of the potential impact of the COVID-19 crisis for start-ups, the government has established a new Future Fund with a budget of £250 m which provides matched funding of between £250,000 and £5 m for equity funded ventures. While sizeable, there may need to be additional support measures to specifically target new seed stage deals, especially given the potential ramifications of 'financial distancing' between entrepreneurial firms and investors (Howell et al, 2020).…”

“…Given that relationships patently matter within the market for sources of entrepreneurial finance, shocks such as the current COVID-19 pandemic could fundamentally disrupt this form of finance (Howell et al, 2020). That said, the upsurge in technological development means that much more risk finance is now allocated by investors via online equity crowdfunding platforms (Brown et al, 2018;Fraser et al, 2015;Nesta, 2019).…”

“Tengo que sobrevivir”: Relato de vida de tres jóvenes microemprendedores bajo COVID-19

“…Barreras del emprendimiento y el emprendedor para iniciar sus negocios Enfrentar la incertidumbre es una parte importante del emprendimiento y que puede observarse en cómo se afronta una crisis como la pandemia del COVID-19, especialmente, dada las posibles ramificaciones del distanciamiento entre empresas emprendedoras e inversores (Howell, Lerner, Nanda, Townsend, 2020; Brown y Rocha, 2020), asi como con sus diversos grupos de interes.…”