The fear of failure often deters entrepreneurs from exploring diverse business opportunities. While various failure protection mechanisms exist, their effectiveness remains debated due to potential moral hazard concerns. Using France's unemployment insurance scheme as a natural experiment, we examine how failure protection influences entrepreneurial exploration behavior. We find that protected entrepreneurs engage in more exploration compared to their unprotected counterparts, and this effect is amplified in innovative industries and among entrepreneurs with high human capital. Drawing on a large-scale entrepreneurial survey and employing coarsened exact matching, we compare unemployment scheme beneficiaries with those transitioning from employment into entrepreneurship during their first five years after venture creation. Our findings advance understanding of how institutional safety nets shape entrepreneurial behavior beyond initial entry decisions, while addressing concerns about moral hazard. These results offer important insights for policymakers designing support systems that aim to foster meaningful exploration and innovation in entrepreneurship.
