Financing of Start-Up and Growth of New Technology-Based Firms in West Germany

Abstract

Detlef Hunsdiek is a research assistant at the Institut fur Mittelstandforschung, Bonn, West Germany. The paper examines the financing of start-up and growth of new technology-based firms in West Germany; it is based on a survey of 200 businesses drawn from a study of 504 business founders originally carried out in 1981 and which had looked at businesses which had started before 1980. The present study was carried out to learn about their development since then and their growth problems. The complexity of the start-up situation is illustrated by the fact that almost every area of business management is mentioned by respondents, acquisition, marketing and financing problems as well as personnel management. Financial problems are above all a reflection of the lack of a track record, an inadequate equity capital base, and the lack of sufficient collateral. Slow payments by customers are also a major problem in maintaining an adequate cash flow. The author concludes that if the business founder cannot finance the potential growth he will fail sooner or later and - as a paradox - will fail because he had a good business idea with a high growth potential.