Funding new ventures: Balancing legitimacy building processes between financing audiences

Abstract

New technology-based firms (NTBFs) often require large amounts of financial capital to develop their technology into viable business offerings. Due to liabilities of newness and asymmetric information, they often lack the legitimacy needed to be credible cases for investors. Hence, the building of legitimacy towards potential funding sources is a key issue in the NTBF development process. This paper empirically examines the process of legitimacy development during the first years of NTBFs' life. Based on longitudinal cases studies where six NTBFs are followed over a three-year period, we find that the legitimation process is indeed continuous, where legitimacy needs to be built, re-built, maintained and restored during the development process of the NTBF. Further, the findings supports previous assertions that the sources of legitimacy varies between different funding sources. As NTBFs usually do not approach different funding sources sequentially, they often need to manage their legitimacy with financing actors with different institutional logics at the same time. This represent a challenging balancing act in the legitimation process for NTBFs