Portfolio size and information disclosure: An analysis of startup accelerators |
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| Institution: | 1. Department of Economics, University of Colorado at Boulder, Boulder, CO 80309, USA;2. Stuart School of Business, Illinois Institute of Technology, Chicago, IL 60616, USA;1. Sam M. Walton College of Business, University of Arkansas, Business Building 302, Fayetteville, AR 72701, United States;2. Daniels College of Business, University of Denver, 2101 S. University Blvd., Denver, CO 80208, United States;1. Imperial College, Imperial College Business School, London, South Kensington, London SW7 2AZ, United Kingdom;2. Desautels Faculty of Management, McGill University, Montreal, Canada;3. Foster School of Business, University of Washington, Seattle, WA 98185, USA;1. University of Valencia, Spain;2. Linnaeus University, Sweden |
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| Abstract: | We study the information-gathering role of a startup accelerator and consider the accelerator's incentives to choose a portfolio size and disclose information about participating ventures. We show that in a rational-expectations equilibrium, the resultant portfolio size is smaller than the first-best (efficient) level, consistent with some real-world observations. We further show that when some signals are uninformative and the portfolio consists of mostly high-quality ventures, the accelerator may choose to disclose only positive signals (and conceal negative signals) about its portfolio firms — a strategy we refer to as partial disclosure. Moreover, coupled with pursuing this strategy of partial disclosure, we demonstrate that the accelerator may possess incentives to exit its portfolio firms early. |
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