Essays in entrepreneurial finance and innovation

Melissa Emily Crumling

doi:10.17918/00011431

Financial markets and innovation depend on the efficient flow of information, talent, and knowledge. However, information frictions often limit the ability of investors to identify promising opportunities, workers to match with productive firms, and firms to learn from one another. These frictions can distort the allocation of capital and talent, constrain entrepreneurship, and slow the diffusion of innovation throughout the economy. This dissertation examines three mechanisms through which such frictions are reduced: data technologies, social networks, and knowledge spillovers. Together, the essays show how improvements in information transmission reshape investment decisions, labor mobility, and innovative activity across firms and regions. The first essay studies whether data technologies reduce information frictions in venture capital markets. Venture capitalists play a central role in financing high-growth entrepreneurial firms, yet their investment decisions are often constrained by limited information and reliance on established geographic and industry networks. I examine whether the adoption of data platforms and artificial intelligence tools expands the set of startups that venture capitalists are able to identify and evaluate. Following adoption, venture capitalists increase investments outside their traditional geographic and industry specializations, directing capital toward startups that would have been less likely to receive financing through conventional network-based sourcing channels. These out-of-network investments exhibit similar or stronger performance than comparable in-network investments and are more likely to achieve successful exits once they reach later financing stages. The findings suggest that data technologies improve the discovery of entrepreneurial opportunities and expand access to venture financing beyond established innovation hubs. The second essay examines how social networks influence the geographic allocation of innovative talent. Using changes in the enforceability of non-compete agreements, we study how labor mobility restrictions affect the relocation decisions of inventors and the regions that ultimately benefit from their movement. We show that inventors respond to stronger non-compete enforcement by relocating to distant regions where they possess stronger social connections. Regions with greater social proximity to affected inventors subsequently experience increases in inventor employment, patenting activity, entrepreneurial entry, and venture financing. These gains are concentrated among young firms, where information asymmetries are high and social ties play an important role in connecting firms with potential employees. The results highlight how informal social networks facilitate the movement of human capital and transmit the effects of local labor market shocks across geographic boundaries. The third essay examines how knowledge generated by young private firms influences innovation by established public companies. While research has traditionally studied innovation within either public or private firms, less is known about how knowledge flows between them. I construct a novel measure of technology spillovers from entrepreneurial and venture capital-backed firms to public firms based on overlap in technological capabilities and inventor resources. Public firms exposed to greater spillovers subsequently produce more patents, receive more citations, and generate more novel innovations. The effects are strongest for spillovers originating from venture capital-backed firms and operate through inventor hiring and acquisitions of innovative startups. These findings demonstrate that knowledge created by entrepreneurial firms extends beyond the firms themselves and contributes to innovation among established incumbents. Taken together, the essays demonstrate that reductions in information frictions have important consequences for the allocation of capital, talent, and innovative activity. Data technologies help investors discover opportunities outside traditional networks, social connections facilitate the movement of skilled workers across regions, and knowledge spillovers transmit innovation from entrepreneurial firms to established corporations. By examining these mechanisms in a unified framework, this dissertation provides evidence that the diffusion of information and ideas plays a central role in shaping entrepreneurial finance, labor mobility, and technological progress.

Essays in entrepreneurial finance and innovation

Files and links (1)

Abstract

Metrics

Details

Essays in entrepreneurial finance and innovation

Files and links (1)

Abstract

Metrics

Details

Drexel University Social media