Equity financing of the entrepreneurial firm

Equity financing of the entrepreneurial firm has achieved a rapid increase over the past> decade. Venture capital funds, which finance privately held start-ups, raised a record $92.3 billion in 2000. This is a 30-fold increase relative to 1990. At Nasdaq, initial public offerings raised an all-time high of$53.6 billion in 2000, which is 24 times as much as in 1990. This article studies venture equity financing and equity financing through initial public offerings against the background of asymmetric information between the entrepreneur and the (outside) investor. The analysis shows that venture capital financing (i) is superior to initial public offerings when the entrepreneur has low initial wealth relative to the size of the project and (ii) is equivalent otherwise. This result highlights the importance of private equity in financing entrepreneurial enterprises. The Gramm-Leach-Bliley Act of 1999 allows banks to expand the scope of their activities in this arena. The act allows financial holding companies to provide equity financing to nonfinancial enterprises for up to ten years. In particular, the act defines a framework in which financial holding companies can sponsor private equity funds that may provide venture capital to entrepreneurial start-ups.Corporations - Finance ; Gramm-Leach-Bliley Act ; Venture capital

Geographic location of a new venture and the likelihood of a venture capital investment

Based on 1182 dyads of German new ventures and venture capitalists involved in a financing round between 2002 and 2007, we examine the impact of spatial proximity on the likelihood of an investment. We find that with each triplication of journey time the relative likelihood of an investment decreases by one third. Venture development stage, the experience of the entrepreneurial team, knowledge-intensity of the industry and the investment volume moderate the relationship between journey time and the likelihood of an investment. Our results suggest that even in economies with a dense infrastructure like Germany regional equity gaps may exist. --venture capital,new venture,geographic location,entrepreneurial finance

Patterns in spatial proximity between venture capital investors and investees in Germany: an empirical analysis

The paper analyzes patterns in spatial proximity between venture capital investors and investees. We use a data set of 950 dyads of venture capitalists and German new ventures which have closed a financing round between January 2002 and March 2007. We are the first study to use minimum travel time via car or plane as realistic measure of spatial proximity. Our results indicate that different factors relating to characteristics of the new venture, the venture capitalist and the financing round help explain variations in spatial proximity. We find that spatial proximity is more likely for younger ventures, ventures in knowledge-intensive industries, smaller, less specialized, more experienced, semi-profit oriented, or lead-venture capital investors, as well as for very small or very large investment volumes. Another key finding is that spatial proximity is more likely for consecutive financing rounds. Furthermore, we find the effects to be more pronounced for lead-investors. --venture capital,new venture,spatial proximity,entrepreneurial

Availability of Financing, Regulatory Business Costs and National Entrepreneurial Propensity

In this paper, we focus on two barriers to entry that may hinder the formation of new firms: capital requirements and regulatory business cost. The contribution of this paper is twofold: we compare the availability of different types of financing sources to address the issue of capital requirement and we utilise a new measure of business cost by constructing a composite index using data from the World Bank’s Doing Business Database. Using cross-sectional data on 37 countries that participated in the 2002 Global Entrepreneurship Monitor, we examine the effect of availability of financing and regulatory business costs on the propensity of three different types of entrepreneurial activity:opportunity-driven, necessity driven and high-growth potential new firm formation. The availability of three types of financing sources is analysed: traditional debt financing, venture capital financing, and informal investments. The findings show that only informal investments significantly influence the propensity to be entrepreneurs. Regulatory business costs were found to deter opportunity driven entrepreneurship, but had no impact on other types of entrepreneurial activity.entrepreneurial activity, financing, venture capital, informal investment, business cost

Possibilities of financing an entrepreneurial venture

The aim of the graduate thesis is to explain possibility of financing an entrepreneurial and sources venture, and parts such as financing rules, financing timing of financing.The work is divided into three themes.The first part explains the term of entrepreneurial venture and the rules of financing.Horizontal,vertical and other funding rules. The second part of the paper has been explained in more detail the timing of the sources of funds,respectively short-term and long-term financing. The third part explains sources of financing a business venture,including external and internal financing sources ,and a decision on the choise of ways to finance an entrepreneurial venture.The aim of the graduate thesis is to explain possibility of financing an entrepreneurial and sources venture, and parts such as financing rules, financing timing of financing.The work is divided into three themes.The first part explains the term of entrepreneurial venture and the rules of financing.Horizontal,vertical and other funding rules. The second part of the paper has been explained in more detail the timing of the sources of funds,respectively short-term and long-term financing. The third part explains sources of financing a business venture,including external and internal financing sources ,and a decision on the choise of ways to finance an entrepreneurial venture

Letter from the Editor-in-Chief

This issue of The Journal of Entrepreneurial Finance and Business Ventures is devoted exclusively to research on venture capital. As such, the issue seeks to develop and analyze research concerns relevant to an area which has come to be recognized as perhaps the singly most important lifeblood concern with respect to entrepreneurship. The financing of business ventures at the germination of idea, start-up, early growth, and public financing stages are all vital to the success of an entrepreneurial venture. Since venture capital participation is almost always essential in each of these phases of entrepreneurial development, work studying the operations of venture capitalists themselves and their interface with nascent and early developing business ventures is at the hallmark of research in the general area of entrepreneurial finance. This issue of the journal seeks to present a selection of such current research

Coming From Good Stock: Career Histories and New Venture Formation

We examine how the social structure of existing organizations influences entrepreneurship and suggest that resources accrue to entrepreneurs based on the structural position of their prior employers. We argue that information advantages allow individuals from entrepreneurially prominent prior firms to identify new opportunities. Entrepreneurial prominence also reduces the perceived uncertainty of a new venture. Using a sample of Silicon Valley start-ups, we demonstrate that entrepreneurial prominence is associated with initial strategy and the probability of attracting external financing. New ventures with high prominence are more likely to be innovators; furthermore, innovators with high prominence are more likely to obtain financing

University Spin-off Fundraising: The Impact of Entrepreneurial Capabilities and Social Networks Of Founding Teams during Start-ups

University spin-offs have increasingly received attention from academia, governments, and policymakers in studying the financing policies, venture capital investment decision making, the roles of venture capitalist in the development of new ventures, and the contributions of entrepreneur’s social capital to the fundraising activities. However, the limited number of studies in understanding of the contribution made by the entrepreneurial capabilities and social networks of a founding team to its fundraising ability still remains, especially within university spin-off context. Employing resource-based view theory and social networks approach, this paper enriches the knowledge by exploring university spin-offs in Spain. The results of this study empirically demonstrate that by exploiting social networks a founding team can improve its entrepreneurial capabilities, which in turn enhance its fundraising ability

Venture capital vs. equity crowdfunding in Finnish entrepreneurial ventures - the strategic reasons behind the choice of funding and the impact on company growth and international expansion

Entrepreneurial ventures are the key drivers of innovation, job creation and economic growth worldwide. These entrepreneurial ventures however require external assistance to be able to compete against bigger players in the global market. It has been recognized that the main issue in hindering growth of these entrepreneurial ventures relates to the lack of financial resources and also partly the lack of knowledge and expertise of global markets. Due to the shortages in available capital, alternative forms of financing have emerged in addition to the more traditional venture capital. One of these emerging forms of financing is called equity crowdfunding, which is essentially collecting monetary investments from a large pool of people through an online platform. With relation to the often highlighted resource shortages hindering the growth of entrepreneurial ventures, the objective of this study was to investigate the differences between venture capital and equity crowdfunding in the context of Finnish entrepreneurial ventures. In more detail, this research examines the strategic reasons that companies have on choosing their funding instruments and how this choice affects the company’s growth and internationalization in the subsequent years. The empirical part of this study has been conducted as a multiple case study with six entrepreneurial ventures all operating in the technology sector. In addition the empirical part of this study also utilizes three industry expert opinions in order to provide a more in-depth data collection process. Research data was collected through nine semi-structured thematic interviews, with six interviews with the entrepreneurs of the chosen case companies and three external industry experts, who represented the views and opinions of the venture capital and equity crowdfunding industries. The findings of this study demonstrate that Finnish entrepreneurial ventures primarily prefer venture capital as their financing instrument. The entrepreneurs perceive that venture capital aids them in their growth and international expansion through the connections and experience of the venture capitalist, while also future funding and exit opportunities were seen as major strategic reasons to choose venture capital. Equity crowdfunding on the other hand was primarily seen as a complicated financing instrument, which is still suffering from the previous legal restrictions, which prevented companies from utilizing online crowdfunding to the fullest potential. Strategic factors related to equity crowdfunding were focused on the additional visibility and market traction it creates, while also on the flexibility in terms of governance. Finally this study finds that both of these funding instruments can be seen to aid companies in growth and international expansion through the non-monetary assets they provide, however venture capital was found to provide even better foundations for this growth

Self-Selection and Advice in Venture Capital Finance

In financing start-up firms, venture capitalists carefully select among alternative projects, design incentive compatible financial contracts and support portfolio companies with value enhancing managerial advice. This paper considers how venture capitalists can induce self-selection among entrepreneurial firms with different qualities and growth potential by designing appropriate contracts and offering managerial support. We study the efficiency of the competitive market equilibrium with respect to the level and quality of entrepreneurship and the level of effort by entrepreneurs and venture capitalists. We also provide comparative static results with respect to basic preference and technology parameters.Venture capital, entrepreneurship, self-selection, moral hazard