The Digital Initiative Presents

Experimenting and failing as means to success

11:00 am December 9, 2020

Online

Policy makers around the world are increasingly developing programs designed to provide capital to young and small ventures in order to spur entrepreneurial activity in certain geographic areas. In the United States, the Department of Commerce and the SBA alone spend over $80 billion dollars annually to support small and early stage entrepreneurial activity. Whether these programs are spurring entrepreneurial activity and what is the outcome of this activity in terms of success versus failure is a topic of considerable debate . We seek to address this debate by employing an improved measure of entrepreneurial activity to consider both failed and successful attempts of venturing. Empirical research on this subject has primarily focused on successful attempts, resulting in inaccurate interpretations of this phenomenon. Using Kickstarter crowdfunding data, we find consistent evidence of a positive effect of new public monetary entrepreneurship policy implementation on entrepreneurial activity. Further, we examine the drivers of this effect by including an improved measure of entrepreneurial activity that brings clarity to the breath of the positive effect. We observe the positive differential effect of a public program is driven prominently by failed campaigns. This suggests that the majority of entrepreneurial activity is driven by experimentation with entrepreneurial ideas at a very early stage. Furthermore, we take into account the funding mechanism which can be either lending or investment. We find consistent results when we replicate the main model considering only lending as the funding mechanism. On the other hand, when we consider investment through venture capital programs as the funding mechanism we find that the positive effect of government program implementation is not driven primarily by failures. Thus, government-lending programs spur entrepreneurial activity through experimentation at the ideation stage, while government-investment programs spur entrepreneurial activity through selection of ideas that have a high potential of raising enough funds to move beyond ideation into the prototype and eventually commercialization stages.

This event is open to faculty, doctoral students, academic researchers, and graduate students.

Experimenting and failing as means to success
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