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Lecture 1 Capital structure, funding gaps and growth.....................................................................................2
Capital structure theory and new technology firms: is there a match? S Coleman, A Robb - Management
Research Review, 2012 .........................................................................................................................................2
What do we know about entrepreneurial finance and its relationship with growth?; S Fraser, SK Bhaumik, M
Wright – International Small Business Journal, 2015............................................................................................5
Entrepreneurship and growth; M. Wright I. Stigliani - – International Small Business Journal, 2012..................7
Lecture 2 Capital structure and financial bootstrapping................................................................................10
The capital structure decisions of new firms; AM Robb, DT Robinson - The Review of Financial Studies, 2014.
.............................................................................................................................................................................10
Financial bootstrapping in small businesses: Examining small business managers' resource acquisition
behaviors; J Winborg, H Landström - Journal of business venturing, 2001 .......................................................12
A longitudinal study on the relationship between financial bootstrapping and new venture growth Tom
Vanacker , Sophie Manigart , Miguel Meuleman & Luc Sels, Entrepreneurship & Regional Development, 2011
.............................................................................................................................................................................14
Lecture 3 Resource orchestration, investor readiness and funding trajectory................................................16
Strategic Entrepreneurship: Creating Value for Individuals, Organizations, and Society Michael A. Hitt, R.
Duane Ireland, David G. Sirmon, and Cheryl A. Trahms – Academy of Management Perspectives; 2011.........16
Ready for funding? Entrepreneurial ventures and the pursuit of angel financing; CG
Brush, LF Edelman, TS Manolova - Venture Capital, 2012..................................................................................19
Growing fast or slow?: Understanding the variety of paths and the speed of early growth of entrepreneurial
science-based firms; M Miozzo, L DiVito - Research Policy, 2016.......................................................................22
Lecture 4 Management Control and financing to scale..................................................................................24
Accounting and Control, Entrepreneurship and Innovation: Venturing into New Research Opportunities
Antonio Davila , George Foster & Daniel Oyon, European Accounting Review, 2009........................................24
The emergence of management controls in an entrepreneurial company Chris Akroyda , Ralph Koberb , Danni
Lic; Accounting & Finance; 2019.........................................................................................................................26
Entrepreneurial finance journeys: embeddedness and the finance escalator, Ekaterina Murzacheva &
Jonathan Levie Venture Capital; 2020.................................................................................................................28
Lecture 6 Network, reputation, trust and investors......................................................................................30
Network ties, reputation, and the financing of new ventures; S Shane, D Cable - Management science, 2002 30
Towards a model of the business angel investment process; S Paul, G Whittam, J Wyper - Venture Capital,
2007 ....................................................................................................................................................................32
A comparison of business angel and venture capitalist investment procedures: an agency theory-based
analysis; M Van Osnabrugge - Venture Capital: An international journal of Entrepreneurial Finance, 2000....35
Lecture 10 Entrepreneurial narratives and crowdfunding.............................................................................38
Start-ups, entrepreneurial networks and equity crowdfunding: a processual perspective; R Brown, S Mawson,
A Rowe - Industrial Marketing Management, 2019............................................................................................38
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, Crowdfunding and innovation; F Hervé, A Schwienbacher - Journal of Economic Surveys, 2018 ......................40
Convincing the crowd: Entrepreneurial storytelling in crowdfunding campaigns; S Manning, TA Bejarano -
Strategic Organization, 2017..............................................................................................................................42
Lecture 1 Capital structure, funding gaps and growth
Capital structure theory and new technology firms: is there a match?
S Coleman, A Robb - Management Research Review, 2012
In this paper we examine the financing strategies of technology-based firms.
Capital structure theory: the mix of debt and equity used by firms to finance their
long-term (fixed) assets.
2
,Debt: capital that has been loaned by other parties and must be repaid.
Equity: the investment made by owners or shareholders and is a permanent source of
capital.
Weighted average costs of capital (WACC): the blended cost of the various sources
of long-term debt and equity.
The capital structure theory contends that firms will selects the mix of debt and equity
that maximizes the value of the firms and minimizes its WACC.
‘Pecking order’ theory of finance (for small, private firms): when insiders have
information about the firm that outsiders do not have. Because of this informational
asymmetry, outside share purchasers will tend to underprice a firm’s shares.
Thus, there is a packing order of financing sources toward allowing the business owner to
retain the maximum amount of control for as long as possible. According to this theory,
firm owners prefer to use internal equity first, followed by short-term debt, long-term
debt, and external equity.
‘Life cycle’ theory of financing: when firms use different types of financing for
different stages of growth. Firm owners prefer financing from debt rather than equity,
because debt does not require them to give up ownership or control of the firm. As the
firm moves through its lifecycle, it becomes less opaque and has access to a broader
array of funding sources. Thus, personal sources of financing are replaced by bank
financing, which is in turn replaced by angel and venture capital funding.
Technology-based firms are usually informationally opaque because they are built upon
new and proprietary technologies, which make it difficult to attract external sources of
capital. At the same time, they are subject to the pressures of rapid growth.
Both the ‘pecking order’ theory and the ‘life cycle’ theory contend that firms will start out
by relying on internally generated funds before gaining access to external sources.
H1: New technology-based firms will have higher ratios of external equity
financing and lower ratios of external debt financing than new firms overall.
Some support; technology-based firms use more external equity financing and less
external debt financing than non-technology-based firms.
H2: New rapid growth firms will rely more heavily on external sources of
financing than new firms overall.
Rapid growth: those firms that attain revenues in excess of $100.000 during their first
year of operation.
Some support
H3: New, innovative firms will rely more heavily on external sources of
financing than new firms overall.
Innovative firms: those that report some type of intellectual property, comparative
advantage, product, or product and service offering.
Accepted
H4: New firms with high credit scores will rely more heavily on external sources
of financing than new firms overall.
Better credit quality firms are able to substitute external financing, and external debt
financing, for internal and owner provided sources of financing.
H5: New firm owners with higher levels of human capital will rely more heavily
on external sources of financing than new firm owners overall.
Human capital: qualifications such as education, prior work experience, previous start up
experience, etc.
Some support; owners with higher levels of human capital will rely on higher levels of
external equity (not external debt).
Conclusions
3
, Technology-based firms raised larger amounts of capital than all firms
Rapid growth technology-based firms raised more capital than all firms or than all
rapid growth firms.
Technology-based firms raised a higher ratio of external equity financing than all
firms or than non-technology-based firms.
Technology-based firms used a lower ratio of owner provided financing and
external debt.
These results are contrary to what we would expect from the pecking order and life cycle
theories, because both theories state that owners prefer to use internal sources of
financing first but the results show that owners use a high ratio of external equity
financing. However, the startup year does match these theories.
In summary, our findings suggest that new technology-based firms demonstrate different
financing patterns than firms that are not technology-based. Non-technology-based firms
follow similar financing patterns to those outlined by both the packing order theory and
the life cycle theory. Our results indicate however, that technology-based firms and high-
performing technology-based firms in particular, are able to attract larger amounts of
both external debt and external equity. This suggests that there is a potential pool of
external investors for technology-based firms if the firm can make a compelling case for
high growth, high credit quality or competitive advantage in the form of intellectual
property. By using these attributes to signal the value of the firm, technology-based
entrepreneurs can overcome some of the problems of asymmetric information. In doing
so, they have the opportunity to raise substantial amounts of external capital to help
launch and develop their firms.
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