Peer Day Participant Presentation The Construction of Knowledge

1. Peer Day Participant PresentationThe Construction of Knowledge Stephen G. Morrissette June 14, 2003

2. Program Overview • Area of Study • Entrepreneurship and Banking • Foci: early stage venture funding • Revised since attached LA draft • Progress to date • LA: 90% done • Certification Mtg: June 2 • DSRE’s: 60% complete • Internship: complete • Residency: 5 peer days; 0 seminars • Research Field Work: Fall 03-Winter 04 • Write PDE: 2004 • Graduate: 5/2005 (“five-oh-five”)

3. PDE: The puzzle • Research Question: • The “puzzle”: Why are people founding hundreds of new banks each year contrary to the tidal wave of mergers justified by economies of scale and globalization? • The study: A descriptive study to explore the profile and motivations of founders of new banks. • Note: Founding investors are distinct from founding employees. • See LA pg 28-31

4. Normal Science • Paradigm is rather stable • Economics: rational expectations school, maximize utility, etc. • Finance: efficient markets, expected returns theory • Some stretching of the paradigm with behavioral economics and behavioral finance My work is an example of normal science • It will fill in one of the gaps • Paradigm creating research was done (much in mid 1900’s) • Research has cascaded from large/public markets (NYSE stocks) to quasi-public markets (like venture capital) now to private markets (like Angel investors) • My work will “fill in one of the gaps” (a characteristic of normal science); it does not set out to challenge the paradigm nor even to examine anomalies.

5. PDE: Literature Review • Economics/Banking: • Obviously broad field, literature review focused on literature related to industry structure and new bank formation • Found heavy emphasis on economies of scale (especially in popular press) • Federal Reserve research shows most economies of scale achieved at very low levels (by 90% of banks) • Very little academic research on cause of new bank formation (one unpublished study by Federal Reserve on correlation with merger activity, 1999) • I conducted 20 preliminary interviews that suggest that founder motivations might provide much insight beyond that yielded from purely quantitative analysis of economic data

6. PDE: Literature Review • Entrepreneurship • Broad field including • invention/innovation/technology • leadership/personality/psychology • management/organizational behavior • finance (“venture capital” may be a familiar term) • Focus on Finance • Project’s focus is founding investors, not founding employees (the term “entrepreneur” is a broad term including founding investors and founding employees; however, most often associated with founding employee – “the inventor.”); see next slide • However, also include leadership/personality • It appears that many founder-investors were are founder-employees for their own company (ex. founder-employee of home builder become founder-investor in new lumber company). • The distinction between founder-investor and founder-employee is blurry in most start-up companies

7. PDE: Literature Review • Entrepreneurship • Finance Lit Review • Good amount of research on venture capital • Very little on early-stage investors (often called “angel investors”) • VC’s grow a firm; Angels fund start-ups • Have found only one study that examines the profile of Angels • Harvard/MIT project (2000) • Focused mainly on technology companies • Provides excellent foundation for my research (instrument and comparability of results)

8. PDE: Lit Review Methods • Started by Reading Hart’s “Doing a Literature Review” • I have used the normal “follow the popcorn trail” approach. • Pretty quickly identify primary journals, publishing houses, and authors. • Each article/book spawns many paths. • I select paths to pursue based on article title, author, and recurrence (if author recurs) • Eventually some paths become circular (reach “saturation”). • Follow online paths farther than paper based (that is, the degree of interest/applicability necessary to invest a few minutes looking at an article online is much lower than that necessary to request paper-based materials). • Surprised by the amount of relevant unpublished material I have found via web searching. • I am worried by the amount of serendipity in the process – some seemingly low-return popcorn trails have often led to valuable finds (like the Harvard-MIT study). • What was excluded: Haven’t written it yet, it seems my search hasn’t excluded enough!

9. PDE: Research Method • Descriptive Study • Mixed Methods • Quantitative: mailed-out survey to 200-300 recent bank founder • Qualitative: depth interviews with 15-30 bank founders • Epistemology: • Mostly Interpretist: Researcher will attempt to understand the meaning of human actions. • Reject constructionist epistemology: Investor motivations can be known; however, I concede that the researcher will be the “instrument” that records that data • Quantitative/demographic profile information will be positivist. • See LA pg 31-38