Entrepreneurship & Finance
Table of contents
Entrepreneurship & Finance ........................................................................................................................... 1
Capital structure theory and new technology firms: is there a match? .............................................................. 2
What do we know about entrepreneurial finance and its relationship with growth? ........................................ 3
Entrepreneurship and growth............................................................................................................................. 4
Financial bootstrapping in small businesses: Examining small business managers’ resource............................ 6
A longitudinal study on the relationship between financial bootstrapping and new venture growth ............... 7
The capital structure decisions of new firms ...................................................................................................... 8
Strategic Entrepreneurship ................................................................................................................................. 9
Growing fast or slow? Understanding the variety of paths and the speed of early growth of entrepreneurial
science-based firms .......................................................................................................................................... 12
Ready for funding? Entrepreneurial ventures and the pursuit of angel financing ............................................ 14
The emergence of management controls in an entrepreneurial company ....................................................... 16
Accouting and control, Entrepreneurship and Innovation: Venturing into New Research Opportunities ........ 17
Entrepreneurial finance journeys: embeddedness and the finance escalator .................................................. 19
Network Ties, Reputation, and the Financing of New Ventures ....................................................................... 21
Towards a Model of the Business Angel Investment Process ........................................................................... 23
A comparison of business angel and venture capitalist investment procedures: an agency theory-based
analysis ............................................................................................................................................................. 26
Start-ups, entrepreneurial networks and equity crowdfunding: A processual perspective .............................. 28
Convincing the crowd: Entrepreneurial storytelling in crowdfunding campaigns ............................................ 30
Crowdfunding and innovation .......................................................................................................................... 33
, Capital structure theory and new technology firms: is there a match?
Coleman and Robb
The purpose of this paper is to explore the extent to which various theories of capital structure
‘fit’ in the case of new technology-based firms. In this paper we examine the financing
strategies of technology-based firms using a new longitudinal dataset of new firms.
Capital structure refers to the mix of debt and equity used by firms to finance their long-term
(fixed) assets. Debt is capital that has been loaned by other parties and must be repaid. In
contrast, equity represents the investment made by owners or shareholders and is a
permanent source of capital. As with other inputs to the firm, i.e., labor, equipment, facilities,
both debt and equity have a cost. The mix of long-term debt and equity is referred to as the
firm’s capital structure. The blended cost of the various sources of long-term debt and equity
is referred to as the firm’s weighted average cost of capital (WACC).
According to the pecking order theory in finance, insiders have information about the firm
that outsiders do not necessarily have. Because of this informational asymmetry, outside
share purchasers will tend to underprice a firm’s shares. In light of that, insiders prefer to use
internal equity in the form of retained earnings or debt before they issue external equity.
Berger and Udell put forth a ‘life cycle’ theory of financing, which contends that firms use
different types of financing for different stages of growth. They noted that small, privately
held firms, in particular, are “informationally opaque” and thus, have a more difficult time
obtaining external sources of financing. These firms tend to be more reliant on insider
financing such as the personal financial resources of the firm owners, and, in instances where
the firm is profitable, retained earnings.
Summary and conclusions
Our findings reveal that technology-based firms raised larger amounts of capital than all firms.
Further, our findings are even more dramatic when we examine the results for high-
performing firms. Rapid growth technology-based firms raised substantially more capital, on
average, than all firms or than all rapid growth firms. Technology-based firms raised a
substantially higher ratio of external equity financing than all firms or than non-technology-
based firms. Conversely, 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. The pecking order states that firms’ owners prefer to use
internal sources of financing first to avoid diluting their ownership position and giving up
control. The life cycle theory states that the problem of informational opacity forces new firms
to rely on internal rather than external sources of financing.
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 pecking 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 IP.
, What do we know about entrepreneurial finance and its relationship with growth?
Fraser, Bhaumik and Wright
This article explores what we do (and do not) know about entrepreneurial finance and its
relationship with growth. Broadly, there is a need for research to go beyond traditional supply
side/market failure issues to better understand the role of entrepreneurial cognition,
objectives, ownership types and firm life-cycle stages in financing/investment decisions. We
propose that the relationship between funding gaps and business performance as a direct and
nuanced approach to identifying financial constraints in different entrepreneurial finance
markets requires scrutiny.
, Entrepreneurship and growth
Wright and Stigliani
Figure 1 presents the
organizing framework. First,
specifically we analyse who is
involved in enabling
entrepreneurial growth by
examining the micro
foundations in terms of
entrepreneurs’ cognitive
processes and experience.
Second, we consider how the
process of resource
orchestration occurs to
facilitate growth with respect
to accessing and configuring
resources. Third, we examine
how the various dimensions of context influence entrepreneurial behavior and resource
orchestration to achieve growth. Finally, we analyse the outcome of these processes in terms
of different patterns, types and measures of growth.
Cognitive or knowledge structures are the basic mental models that people use to make sense
of and organize information. These structures rely on comparative thinking to make
connections, find patterns and relationships and generate rules and abstract generalizations
which apply to more than the immediate situation. The most common cognitive structures
documented by theories on cognition include cognitive maps, categorizations, logical
reasoning, metaphors, symbolic and visual representations and scripts.
Decision making. Making decisions is a key task faced by all entrepreneurs, as they often face
environments characterized by high levels of uncertainty and ambiguity. Usually,
entrepreneurs are portrayed as people who ‘think on their feet’ and prefer action to reflection
and thought, as often they must make decisions rapidly. Therefore, they tend to think
heuristically, following quick rules for making decisions and planning action rather than
thinking analytically and systematically.
Opportunity evaluation. Evaluation opportunities is a critical entrepreneurial process in
differentiating an idea from an opportunity. Deciding whether an idea represents an
opportunity often involves making judgements under conditions of complexity and
uncertainty. Closely associated with uncertainty is risk, which is the probability than an
entrepreneur will successfully turn an idea into an opportunity. As such, perceived risk is a
significant aspect of how entrepreneurs evaluate available ideas; an idea will be evaluated
more favorably where risks are deemed to be lower.
Sense-making is commonly understood as a process in which individuals or groups attempt to
interpret novel and ambiguous situations when they face events or tasks that cannot be
readily interpreted using available mental structures. The sense-making approach has
Table of contents
Entrepreneurship & Finance ........................................................................................................................... 1
Capital structure theory and new technology firms: is there a match? .............................................................. 2
What do we know about entrepreneurial finance and its relationship with growth? ........................................ 3
Entrepreneurship and growth............................................................................................................................. 4
Financial bootstrapping in small businesses: Examining small business managers’ resource............................ 6
A longitudinal study on the relationship between financial bootstrapping and new venture growth ............... 7
The capital structure decisions of new firms ...................................................................................................... 8
Strategic Entrepreneurship ................................................................................................................................. 9
Growing fast or slow? Understanding the variety of paths and the speed of early growth of entrepreneurial
science-based firms .......................................................................................................................................... 12
Ready for funding? Entrepreneurial ventures and the pursuit of angel financing ............................................ 14
The emergence of management controls in an entrepreneurial company ....................................................... 16
Accouting and control, Entrepreneurship and Innovation: Venturing into New Research Opportunities ........ 17
Entrepreneurial finance journeys: embeddedness and the finance escalator .................................................. 19
Network Ties, Reputation, and the Financing of New Ventures ....................................................................... 21
Towards a Model of the Business Angel Investment Process ........................................................................... 23
A comparison of business angel and venture capitalist investment procedures: an agency theory-based
analysis ............................................................................................................................................................. 26
Start-ups, entrepreneurial networks and equity crowdfunding: A processual perspective .............................. 28
Convincing the crowd: Entrepreneurial storytelling in crowdfunding campaigns ............................................ 30
Crowdfunding and innovation .......................................................................................................................... 33
, Capital structure theory and new technology firms: is there a match?
Coleman and Robb
The purpose of this paper is to explore the extent to which various theories of capital structure
‘fit’ in the case of new technology-based firms. In this paper we examine the financing
strategies of technology-based firms using a new longitudinal dataset of new firms.
Capital structure refers to the mix of debt and equity used by firms to finance their long-term
(fixed) assets. Debt is capital that has been loaned by other parties and must be repaid. In
contrast, equity represents the investment made by owners or shareholders and is a
permanent source of capital. As with other inputs to the firm, i.e., labor, equipment, facilities,
both debt and equity have a cost. The mix of long-term debt and equity is referred to as the
firm’s capital structure. The blended cost of the various sources of long-term debt and equity
is referred to as the firm’s weighted average cost of capital (WACC).
According to the pecking order theory in finance, insiders have information about the firm
that outsiders do not necessarily have. Because of this informational asymmetry, outside
share purchasers will tend to underprice a firm’s shares. In light of that, insiders prefer to use
internal equity in the form of retained earnings or debt before they issue external equity.
Berger and Udell put forth a ‘life cycle’ theory of financing, which contends that firms use
different types of financing for different stages of growth. They noted that small, privately
held firms, in particular, are “informationally opaque” and thus, have a more difficult time
obtaining external sources of financing. These firms tend to be more reliant on insider
financing such as the personal financial resources of the firm owners, and, in instances where
the firm is profitable, retained earnings.
Summary and conclusions
Our findings reveal that technology-based firms raised larger amounts of capital than all firms.
Further, our findings are even more dramatic when we examine the results for high-
performing firms. Rapid growth technology-based firms raised substantially more capital, on
average, than all firms or than all rapid growth firms. Technology-based firms raised a
substantially higher ratio of external equity financing than all firms or than non-technology-
based firms. Conversely, 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. The pecking order states that firms’ owners prefer to use
internal sources of financing first to avoid diluting their ownership position and giving up
control. The life cycle theory states that the problem of informational opacity forces new firms
to rely on internal rather than external sources of financing.
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 pecking 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 IP.
, What do we know about entrepreneurial finance and its relationship with growth?
Fraser, Bhaumik and Wright
This article explores what we do (and do not) know about entrepreneurial finance and its
relationship with growth. Broadly, there is a need for research to go beyond traditional supply
side/market failure issues to better understand the role of entrepreneurial cognition,
objectives, ownership types and firm life-cycle stages in financing/investment decisions. We
propose that the relationship between funding gaps and business performance as a direct and
nuanced approach to identifying financial constraints in different entrepreneurial finance
markets requires scrutiny.
, Entrepreneurship and growth
Wright and Stigliani
Figure 1 presents the
organizing framework. First,
specifically we analyse who is
involved in enabling
entrepreneurial growth by
examining the micro
foundations in terms of
entrepreneurs’ cognitive
processes and experience.
Second, we consider how the
process of resource
orchestration occurs to
facilitate growth with respect
to accessing and configuring
resources. Third, we examine
how the various dimensions of context influence entrepreneurial behavior and resource
orchestration to achieve growth. Finally, we analyse the outcome of these processes in terms
of different patterns, types and measures of growth.
Cognitive or knowledge structures are the basic mental models that people use to make sense
of and organize information. These structures rely on comparative thinking to make
connections, find patterns and relationships and generate rules and abstract generalizations
which apply to more than the immediate situation. The most common cognitive structures
documented by theories on cognition include cognitive maps, categorizations, logical
reasoning, metaphors, symbolic and visual representations and scripts.
Decision making. Making decisions is a key task faced by all entrepreneurs, as they often face
environments characterized by high levels of uncertainty and ambiguity. Usually,
entrepreneurs are portrayed as people who ‘think on their feet’ and prefer action to reflection
and thought, as often they must make decisions rapidly. Therefore, they tend to think
heuristically, following quick rules for making decisions and planning action rather than
thinking analytically and systematically.
Opportunity evaluation. Evaluation opportunities is a critical entrepreneurial process in
differentiating an idea from an opportunity. Deciding whether an idea represents an
opportunity often involves making judgements under conditions of complexity and
uncertainty. Closely associated with uncertainty is risk, which is the probability than an
entrepreneur will successfully turn an idea into an opportunity. As such, perceived risk is a
significant aspect of how entrepreneurs evaluate available ideas; an idea will be evaluated
more favorably where risks are deemed to be lower.
Sense-making is commonly understood as a process in which individuals or groups attempt to
interpret novel and ambiguous situations when they face events or tasks that cannot be
readily interpreted using available mental structures. The sense-making approach has
