Michael Ewens

California Institute of Technology
MC 228-77
1200 East California Avenue
Pasadena, CA 91125
Tel: 619/512-3820

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NBER Program Affiliations: PR
NBER Affiliation: Faculty Research Fellow
Institutional Affiliation: California Institute of Technology

NBER Working Papers and Publications

July 2019Venture Capital Contracts
with Alexander S. Gorbenko, Arthur Korteweg: w26115
We estimate the impact of venture capital (VC) contract terms on startup outcomes and the split of value between the entrepreneur and investor, accounting for endogenous selection via a novel dynamic search and matching model. The estimation uses a new, large data set of first financing rounds of startup companies. Consistent with efficient contracting theories, there is an optimal equity split between agents that maximizes the probability of success. However, VCs use their bargaining power to receive more investor-friendly terms compared to the contract that maximizes startup values. Better VCs still benefit the startup and the entrepreneur, due to their positive value creation. Counterfactual exercises show that eliminating certain contract terms benefits entrepreneurs and enables low-qu...
June 2019Acquisition Prices and the Measurement of Intangible Capital
with Ryan H. Peters, Sean Wang: w25960
We use 1,521 acquisition purchase price allocations to estimate intangible capital stocks. The estimated depreciation of knowledge capital (R&D) is 32%, some 28% of SG&A represents investment in organizational capital and parameter estimates exhibit significant industry variation. Aggregating these accounts, 75% of intangibles come from organizational capital, and total stocks are 10% smaller versus stocks using prior parameters. Adjusting for intangibles, average market-to-book falls from 1.74 to an average of one. Relative to existing approaches, our stocks improve the explanatory power of enterprise value, human capital and brand rankings, while exhibiting the expected correlations with patent valuations and investment rates.
April 2018Cost of Experimentation and the Evolution of Venture Capital
with Ramana Nanda, Matthew Rhodes-Kropf: w24523
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 venture capitalists (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 r...

Published: Michael Ewens & Ramana Nanda & Matthew Rhodes-Kropf, 2018. "Cost of experimentation and the evolution of venture capital," Journal of Financial Economics, . citation courtesy of

June 2013Is a VC Partnership Greater than the Sum of its Partners?
with Matthew Rhodes-Kropf: w19120
This paper investigates whether individual venture capitalists have repeatable investment skill and to what extent their skill is impacted by the VC firm where they work. We examine a unique dataset that tracks the performance of individual venture capitalists' investments across time and as they move between firms. We find evidence of skill and exit style differences even among venture partners investing at the same VC firm at the same time. Furthermore, our estimates suggest the partner's human capital is two to five times more important than the VC firm's organizational capital in explaining performance.

Published: Michael Ewens & Matthew Rhodes-Kropf, 2015. "Is a VC Partnership Greater Than the Sum of Its Partners?," Journal of Finance, American Finance Association, vol. 70(3), pages 1081-1113, 06. citation courtesy of

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