Three Essays in Startup Financing

Abstract

This thesis presents three standalone empirical studies on the factors shaping the financing of new ventures. The first study examines how stock market valuations of green stocks influence green venture financing. Using deep learning on business descriptions, we identify green ventures as those addressing environmental concerns. We find that pre-IPO investors cater to a higher environmental premium, measured by the relative valuation of green to brown stocks, by increasing investments in later-stage green ventures while providing less funding to early-stage ventures, likely due to resource constraints. Experienced investors and those closer to green ventures respond more strongly to the E-premium. Lastly, pre-IPO investors also accelerate exits to capitalize on the high E-premium. The second study explores the effects of climate policy uncertainty on green venture financing (CPU). Using a news-based CPU measure, we find that heightened CPU leads pre-IPO investors to reduce investments in green ventures. The effect is more pronounced for those with high climate change exposure and in later-stage rounds, which are typically less reversible. However, financing rounds involving high competition see mitigated impacts. Moreover, securing funding during heightened CPU periods significantly hinders subsequent financing prospects. The third study investigates the role of founding teams’ employment history diversity in pre-IPO financing. We document that ventures with greater ‘experience diversity’ secure more funding from a higher number of investors and attract a larger proportion of experienced and geographically proximate investors. The effect is weaker in later-stage rounds, where specialization is more relevant, and in uncertain environments, where consensus on strategic changes is challenging. Finally, ventures led by diverse teams are more likely to achieve successful exits, highlighting the advantages of experience diversity in entrepreneurial success.