Research

This paper uses the Inflation Reduction Act (IRA) of 2022 as a natural experiment to examine how large-scale subsidies influence startup investment dynamics over short horizons. In the year following the IRA’s passage, climate tech’s share of first-round venture deals increased by roughly 30%, even as overall venture activity contracted. Using a difference-in-differences and event-study design, I find that post-IRA entrants were about 30% less likely to secure a follow-on round within 18 months and produced roughly 50% fewer patents. Firm and deal characteristics remain stable, but investor climate experience and average fund size decline sharply, suggesting that subsidies can draw in less experienced investors whose weaker screening and oversight ultimately reduce short-run startup performance.