Resource Complementarities, Trade-Offs, and Undercapitalization in Technology-Based Ventures: An Empirical Analysis

Abstract

Undercapitalization is one of the most challenging obstacles to success facing early-stage technology-based ventures. However, most research on the topic tends to be atheoretical with a lack of general agreement on the definition of key concepts. In this study we define undercapitalization as the failure of young ventures to procure enough capital to meet the organization's strategic priorities, and theoretically ground this definition by extending recent work on the payments perspective in resource-based theory. Based on these theoretical arguments, we develop and test of series of hypotheses using hierarchical lognormal survival analysis and two-limit tobit regression to examine how underlying value of and trade-offs among a venture's core set of resources affect its risk of undercapitalization, and how undercapitalization affects new venture survival rates. Implications of these findings and several directions for future research are discussed as well.