I’m a Strategy & Entrepreneurship doctoral candidate at the University of Maryland. Before academia, I spent two decades founding, scaling, and exiting venture-backed firms as founder and CEO (bitpipe acquired by Techtarget and ownerIQ acquired by Inmar Intelligence). My entrepreneurial experience motivates my research agenda and shapes my teaching. I study the pivotal role of capital at a venture’s two most consequential points: formation—when talent and ideas must attract external resources—and exit, or “end-of-life”—when market selection, managerial discretion, and capital markets shape a venture’s outcome. 

The Other Half: How does Non-VC Hub Location Affect Startups’ Access to Initial Equity Investment?

Jay Habegger, Florence Honoré & Rajshree Agarwal (R&R at Management Science)

(Previously circulated as Searching in the Dark)

While regional entrepreneurial ecosystems are geographically dispersed within the US, the venture capital (VC) industry is highly localized in three regions: Silicon Valley, Boston, and NYC. We investigate differences in access to initial equity financing of startups located in these VC Hubs and elsewhere (non-VC Hubs) to examine whether financial capital flows efficiently to high-potential entrepreneurial opportunities regardless of their location and adjudicate among potential explanations for observed differences. To do so, we assembled the census of 19,294 US early-stage initial equity financing investments reported in the 1992-2019 period. Although there are just as many investments in VC and non-VC Hubs, we find that relative to those in VC Hubs, startups in non-VC Hubs are more likely to have lower investment amounts, take longer to complete the investment, and have fewer and more diverse investors in their syndicate. These results cannot be explained by observable differences in startup quality. Moreover, we fail to find evidence for co-location (as a mechanism for alleviating agency risk or provision of superior resources), or market power (as an oligopsony mechanism reducing competitive pressures on VC firms) as explanations for these differences. Instead, our analyses suggest a plausible alternative explanation is that non-VC hub startups incur higher search costs when acquiring their initial investment.

Who Calls the Shots? Decision Frameworks Shaping Initial Investment Syndicates 

Jay Habegger & Florence Honoré 

Innovative, growth-oriented startups are crucial to economic dynamism and the emergence of new industries. These startups often rely on venture capital (VC) and initial equity investments to finance their development. The entrepreneur and lead investor agree on the investment and then confront a strategic choice regarding whether to expand the syndicate to include additional investors. Existing scholarship focuses on investor motivations for syndicate expansion, with the lead investor often serving as the primary decision-maker. We argue that alternative decision frameworks are equally plausible and infer the best explanation using a sample of 22,483 initial equity investments from 1970 to 2019. We find weak support for investor motivations proposed in existing literature to explain expanded syndicates, such as mitigating information asymmetry, relative investor experience, and the role of prior co-investment relationships. Our results suggest that, if these investor motivations exist, they are attenuated by the specific circumstances of the investment. We find consistent signals that aligned entrepreneur-lead investor motivations, such as the desire to increase the amount of capital acquired, are associated with expanded syndicates. Syndication patterns observed in follow-on investments support this conclusion. Initial syndicate formation is nuanced, and syndicate expansion likely results from a collaborative negotiation between entrepreneurs and investors 

Digital advertising is now the largest share of ad spending, but it wasn’t always. “Retail media” wasn’t even a common phrase—let alone a full advertising category—until recently. Today, global retail-media spend alone in is estimated at about $140 billion annually. These trade articles I wrote while CEO of OwnerIQ are interesting (amusing?) because they date from the inception of programmatic retail media, when the concept still required explanation to retailers and Amazon was not yet seen as an advertising superpower.