Essays on Financial and Technological Innovations, Private Capital Markets, and Entrepreneurship

Abstract

Access to financing is one of the main barriers to entrepreneurial activities and economic growth. In my research, I investigate whether financial and technological innovations mitigate frictions in the market for early-stage financing and spur economic activity. In Chapter 1, I study whether access to return-based crowdfunding decreases the importance of local financial market development for entrepreneurial activities. Using both the staggered adoption of intrastate equity crowdfunding across U.S. states and the 2016 passage of Regulation CF, I find that access to crowdfunding increases the number of business applications, and this effect is stronger in states where local financial markets are less developed. I also find that by reducing local bias in entrepreneurship, intrastate crowdfunding benefits entrepreneurs who work in states where they were not born. Interestingly, intrastate crowdfunding, but not Regulation CF, increases the number of business applications that turn into employer businesses. While intrastate crowdfunding increases job creation and self-employment and decreases job destruction, Regulation CF decreases establishment entry and exit. In Chapter 2, my co-authors and I investigate whether access to online communication technologies can decrease the importance of geographical proximity in acquiring soft information. To answer this question, we focus on the VC industry because lack of hard information on start-ups makes this industry heavily reliant on soft information and as a result on in-person interactions. We investigate how the sudden interruption in in-person meetings due to Covid-19 affected VC’s deal selection, monitoring, and deal syndication. We find that VCs invest in farther away companies; However the changes we observe in characteristics of portfolio companies, in monitoring practices, and in forming syndications suggest that access to on-line communications cannot eliminate the frictions caused by distance between VCs and their portfolio companies in acquiring soft information. In Chapter 3, using a hand-collected data set on the Regulation A+ filings, I provide detailed information on the age, size, number of employees, financial statement items, and industrial and geographical distributions of companies that use Regulation A+. Testing the effect of Regulation A+ on the local economy, I find that the amount raised through this method of financing is negatively associated with ensuing unemployment rate. In addition, I investigate whether this new method of financing is substituting or complementing venture capital (VC) financing. The data analysis shows that Regulation A+ facilitates access to financing in regions and industries that could not attract VC-financing ex-ante. Finally, I find evidence consistent with successful Regulation A+ offerings in a region attracting ensuing VC investments through decreasing uncertainty and search cost. Overall, my dissertation demonstrates that financial and technological innovations increase access to financing and spur entrepreneurial activities more in less developed regions. As a result, they can mitigate the discrepancies in entrepreneurial activities and economic growth across the U.S.