Entrepreneurial Finance

Abstract

Restricted access to finance is often cited as one of the most prominent problems of innovative startups throughout their life cycle. Many entrepreneurial ventures, including big data startups, require external capital to realize their exponential growth and eventually achieve a successful exit in the form of an initial public offering (IPO) or an acquisition. Therefore, startup founders have to be fully aware of their funding options and potential added value that different types of investors may bring to the table. Funding decisions always include a number of strategic considerations, as investors do not only provide monetary funding. Quite to the contrary, startup investors fulfill various additional roles, including strategic advisors, network connectors, facilitators of human capital, and internal conflict resolution. Nonetheless, despite startup financing is definitely not a zero-sum game, agency problems and diverging incentives cloud the relationship between startup investors and entrepreneurs (Fried and Ganor, New York University Law Review 81:967–1025; 2006). This chapter provides an overview of different types of investors that provide financing for innovative (tech) startups, including their particular incentives in the startup investment process and the financial considerations. It follows the startup life cycle from its seed phase till exit.