Evaluating Selection Bias in Early-Stage Investment Returns, with Aksel Mjos (Norwegian School of Economics) and David T. Robinson (Duke University and NBER) (Journal of Financial and Quantitative Analysis. Published online 2025:1-31.)
This paper investigates sample selection bias in early-stage investment. We use comprehensive administrative data on the universe of new firm starts in Norway, allowing us to compare venture-backed firms with ex ante similar firms that do not receive venture funding. The valuation premium for venture backing is sizeable at firm birth and doubles over the first five years, implying a substantial upward bias in VC returns relative to comparable firms. In contrast, the premium for firms receiving multiple rounds of outside equity emerges only after the first year and remains significantly smaller than the VC premium throughout the firm lifecycle..
Are Some Angels Better than Others?, with Johan Karlsen (Norwegian School of Economics), Aksel Mjos (Norwegian School of Economics) and David T. Robinson (Duke University and NBER) (Revise & Resubmit at Journal of Finance)
This paper provides novel, large-scale evidence on the returns to angel investing. Returns are extremely right-skewed: most lose money, the top one percent return more than fifty times invested capital, and the mean investment doubles invested capital. Investor-specific variation is an important part of overall variation in returns. Wealthier investors sort into better firms yet earn lower returns compared to other investors in those firms. Better performing angels have more startup-specific and industry knowledge, founder connections, and engage in active governance. These findings have implications for policies aimed at expanding early-stage finance.
Entrepreneurial Public Funding Choices: Who Applies, Who Gets, Who Gains?
This paper provides a unified, within-country comparison of three major public funding programs---grants, loans, and equity---using comprehensive data from Norway. It tracks, for each program, who applies and why, and---conditional on approval or rejection---each applicant’s innovation, employment, revenues, and market valuation. Targeted grants for the most constrained startups generate uniquely large and persistent gains in innovation and growth. In contrast, government loans primarily serve as selection tools, directing resources to firms already on strong growth trajectories. They highlight the trade-off between targeting need and maximizing aggregate welfare. Equity benefits depend on private capital market orientation. While this sustains a certification premium in valuation, it does not yield lasting operational gains relative to privately-financed firms. Thus, the structure and governance of equity programs matter as much as the capital itself. Ultimately, these funding programs are not substitutes but complements, each supporting different types and stages of firms within the entrepreneurial ecosystem.
Family Financing in Startups, with Brian K. Baik (Harvard Business School) and Johan Karlsen (Norwegian School of Economics)
Using Norwegian administrative data, we identify family investments in startups and examine their effects on investor returns and firm behavior. Family investors earn lower returns than outside angel investors, and the firms they back are less likely to secure professional financing or achieve a successful exit. These firms also pursue more conservative strategies resulting in lower innovation- and operation-related outcomes. Instrumental variable (IV) estimates that exploit geographic distance between founders and relatives at firm incorporation indicate that most cross‑sectional differences largely reflect selection rather than causal influence. Placebo and difference‑in‑differences tests, alternative instruments, and subsample checks support the exclusion restriction and yield consistent conclusions. Additional tests suggest that family investors’ protective altruism toward founders is the driving mechanism behind this selection: conservatism is strongest when family members co‑reside with the founder and persists among wealthy and experienced family investors. We document family investors as a behaviorally distinct source of startup capital.
On the Importance of Accounting Information in Early-Stage Financing, with Aksel Mjos (Norwegian School of Economics) and David T. Robinson (Duke University and NBER) (Reject & Resubmit at Journal of Accounting and Economics)
We examine the importance of financial accounting information in early-stage equity financing, when firms are young, opaque and characterized by extreme information asymmetry. Using comprehensive Norwegian administrative data, we combine financial statements with transaction-level equity records covering the entire population of private firms. Leveraging an ex ante innovation-screening design, we identify all high-innovation-potential firms and analyze whether earnings explain which firms raise capital, how much, and at what valuation. We find that earnings are only modestly informative for valuations, but strongly predictive of capital provided---particularly by foreign and corporate investors exposed to greater informational frictions. Granular accounting items and firm characteristics add little beyond core aggregates. Our findings provide the first population-level evidence on how accounting information matters across all stages of the entrepreneurial financing process. They extend the value relevance literature to high-uncertainty private markets and underscore the role of standardized reporting in capital allocation beyond investor-selected samples.
Fundamentals of Entrepreneurial Accounting
Established Public Firms Creating Newly Public Firms with Merih Sevilir (IWH Halle and ESMT Berlin)
What Information do Startups Provide to Their Venture Capital Investors? with Malte Lorenz, ESMT Knowledge 2017.
Identifikation nahe stehender Personen im Rahmen der gesetzlichen Abschlussprüfung (Identification of related parties within the statutory annual audit), with Klaus Ruhnke (Freie Universität Berlin), Die Wirtschaftsprüfung (65), 1079-1088.