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SUMMARY:Tax Incentives and Venture Capital Risk-Taking - Murillo Campello 
 (Cornell University) 
DTSTART:20250605T113000Z
DTEND:20250605T123000Z
UID:TALK218395@talks.cam.ac.uk
CONTACT:Cerf Admin
DESCRIPTION:Can tax subsidies prompt investors to fund riskier ventures? W
 e answer this question under a framework in which venture capitalists (VCs
 ) combine outside funding with incentive-based compensation and study a po
 licy change that eliminated capital gains taxes on certain startup investm
 ents. Using bunching methods\, regression discontinuity designs\, and a tr
 iple-differences design exploiting industry eligibility\, investment year\
 , and holding requirements\, we analyze data from 158 thousand investor—
 firm pairings over two decades. We first identify strategic investment tim
 ing\, with tax subsidies prompting concentration at required holding-perio
 d thresholds. We then document strategic capital allocation\, with investm
 ents just below the eligibility threshold receiving more follow-on funding
  than those just above. When and where tax subsidies apply\, VCs shift the
 ir project selection toward riskier ventures: they increase investments in
  pre-commercial stage startups and firms carrying pre-existing debt. They 
 also become more likely to invest across state lines\, provide a company's
  first institutional funding\, and invest as sole financiers\, while becom
 ing less likely to require equal footing (pari passu) contract terms. In t
 urn\, their portfolio companies show higher failure rates and greater mult
 i-year funding gaps. The increased risk-taking yields salient return outco
 mes: tax-subsidized VC-backed ventures attain high exit values and are mor
 e likely to reach “unicorn status.” None of these patterns are observe
 d for comparable non-VC investors receiving the same tax subsidies. Data o
 n board-voting rights and executive turnover suggest that observed outcome
 s do not stem from changes in post-investment governance or monitoring act
 ivities.  Our study is the first to show that tax policy can shift entrepr
 eneurial financing toward riskier\, more experimental\, valuable ventures\
 , with outcomes shaped by investor organizational structure and incentives
 .
LOCATION:W2.02\, CJBS
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