
Cost of Experimentation and the Evolution of Venture Capital [pdf] - Dowwie
http://www.hbs.edu/faculty/Publication%20Files/15-070_ce69055e-1e3a-4647-96c2-37e474f48914.pdf
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Dowwie
Abstract: "We study how technological shocks to the cost of starting new
businesses have led the venture capital model to adapt in fundamental ways
over the prior decade. We both document and provide a framework to understand
the changes in the investment strategy of VCs in recent years - an increased
prevalence of a “spray and pray” investment approach - where investors provide
a little funding and limited governance to an increased number of startups
that they are more likely to abandon, but where initial experiments
significantly inform beliefs about the future potential of the venture. This
adaptation and related entry by new financial intermediaries has led to a
disproportionate rise in innovations where information on future prospects is
revealed quickly and cheaply, and reduced the relative share of innovation in
complex technologies where initial experiments cost more and reveal less."

