Was there too little entry during the Dot Com Era?

With Brent Goldfarb and David Kirsch

Journal of Financial Economics, 86(1):100-144, October 2007

Abstract: We present four stylized facts about the Dot Com Era: (1) there was a widespread belief in a "Get Big Fast" business strategy; (2) the increase and decrease in public and private equity investment was most prominent in the internet and information technology sectors; (3) the survival rate of dot com firms is on par or higher than other emerging industries; and (4) firm survival is independent of private equity funding. To connect these findings we offer a herding model that accommodates a divergence between the information and incentives of venture capitalists and their investors. A Get Big Fast belief cascade may have led to overly focused investment in too few internet startups and, as a result, too little entry.

Free Access: Authors’ manuscript April 2006

Press coverage:

• The New York Times (Leslie Berlin): "Lessons of survival from the Dot-Com attic," p. BU4, 11/23/2008

• The Wall Street Journal (Lee Gomes): "The Dot-Com Bubble is reconsidered—and maybe relived," p. B1, 11/8/2006

• Inc.com (Leslie Taylor): "The dot-com bust? Not as bad as you think," 12/4/2006