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Amazon Web Services changed the way VCs fund startups

May 11, 2017

As cloud technologies allow startups to build companies faster and cheaper than ever before, venture capitalists are rethinking who and how many companies they finance, according to recent research by NEXT Canada faculty Ramana Nanda and colleagues. 

Enter the era of “spray and pay,” where venture firms over the last decade have seeded more firms than previously, but with less upfront investment of time and money. As someone who teaches entrepreneurial finance, Harvard Business School Professor Ramana Nanda wanted to find out if this new strategy has paid off for investors and their portfolio companies.

Nanda and colleagues present their findings in a paper scheduled to appear in a forthcoming issue of the Journal of Financial Economics, titled Cost of Experimentation and the Evolution of Venture Capital, co-written with Michael Ewens of the California Institute of Technology and Matthew Rhodes-Kropf of MIT Sloan School of Management.

The researchers focus on one of the most important technological shifts in recent years—the introduction of Amazon Web Services, which has allowed startups to cheaply rent server space and development tools in the cloud and scale up as needed rather than purchasing their own expensive hardware and software.

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