Startup Accelerator

Seed Accelerators and Information Asymmetries: Evidence from Corporate Venture Capital Investments

(Joint work with Peng Huang)

A comprehensive study of how seed accelerators help investors in addressing the assessment and valuation problem of startups and aiding them in achieving their investment goals

Status: Invited for re-submission at Management Science

This paper has been selected as one of the Best Papers at the AOM Meeting 2019

Abstract

Seed accelerators – a cohort-based new institutional form that combines mentorship, seed investments and networking to nurture early-stage startups for a fixed time period – have gained popularity over the last decade, especially in the technology startup space. However, little is known about the mechanisms through which seed accelerators impact the behavior of investors, and the degree to which they help alleviate the challenges of information asymmetry in the venture capital market. Our study bridges this gap by focusing on the impact of seed accelerators on Corporate Venture Capitalists (CVCs), for whom the problems of assessment and valuation of startups that stems from asymmetric information are particularly acute. The analyses reveal that CVCs, usually known for investing in late-stage startups, significantly increase their early-stage investments in the regions where seed accelerators begin their operations, an indication that seed accelerators help address the problem of assessment and valuation of new ventures. We also show that CVCs significantly increase their investments in portfolio firms that are less related to their core business after the entry of seed accelerators, suggesting that seed accelerators mitigate information asymmetry and help CVCs gain exposure to a wider range of new technologies. These findings deepen the understanding of the role seed accelerators play in improving the overall investment ecosystem in a region.

Links

AOM Best Paper Proceedings