Follow the Money: The Funding Acquisition Process of Nascent Ventures

Abstract

This paper integrates the largely separate literatures of financial bootstrapping and pecking-order theory (POT) in order to explore how funding acquisition processes evolve at the firm level. Based on novel optimal matching techniques combined with binary logistic regressions, we identify how the most typical funding acquisition processes of nascent ventures evolve in specific circumstances. In accordance with financial bootstrapping theory, the majority of nascent ventures rely on bootstrapped finance. Importantly, we are additionally able to theorize – in line with pecking order theory – under which circumstances the minority of nascent ventures transition from founder and insider equity towards market-based (debt and equity) finance. As a result we offer a novel theoretical approach to understand how funding acquisition processes evolve in nascent venture.