Research: How Cloud Computing Changed Venture Capital

How has technology changed which deals venture capitalists (VCs) fund and how they fund them? In recent research, we examine a particular innovation that had a broad impact on some types of startups but little to no effect on others.  The introduction of cloud computing services in the mid 2000s allowed Internet and web-based startups to avoid large initial capital expenditures and instead “rent” hardware space and other services in small increments, scaling up as demand grew.  Cloud computing made the early ‘experiments’ for these firms significantly cheaper. In sectors impacted by the technological shock of cloud computing, VCs tended to respond by providing less funding and limited governance to an increased number of startups. These VCs were also more likely to abandon their investments after the first round of funding.