Indecision! And My New Thesis Topic About VC.

So I switched my thesis topic today.  Originally I wanted to write on social media and its affect on financial markets.  More specifically I wanted to look at StockTwits tweets its effects.  Unfortunately since StockTwits is so recent and we have such a short period of time to write our thesis my advisor and I decided that this was a little bit too ambitious of an undertaking.

My new topic:  How has the financial crisis affected the venture capital industry?  In a previous paper about the financial crisis and venture capital Joern Block and Philipp Sandner found that on average companies that raised funding after the financial crisis raised 20% less than those that raised funding before.  Interestingly they found that this difference in funding was not found in early stage seed funding, but rather in Series A or later.

The hypothesis explaining this was that entrepreneurs that hadn’t already raised seed capital could simply wait for a better economic climate, but firms that had already raised some capital had pressure to execute and could not simply put off their need for capital until the economy turned around and must accept funds on worse terms.

For my paper I hope to look at the effects in even more detail.   I think looking into if the location of the startup influences in any way the amount of funding or the valuation pre and post financial crisis.  One theory I have is that since start ups outside of the entrepreneurial hot spots are already under immense pressure and scrutiny by VCs the ones that do survive and were funded after the financial crisis are already the best of the best.  Because of this I believe the financial crisis will have had less of an effect on start ups located outside of the entrepreneurial friendly cities such as Silicon Valley, New York, and Boulder.

Of course I am still very early in my thesis process and my ideas are constantly evolving.  I would love any input anyone has on my idea or suggestions as far as interesting hypotheses to test.

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