The Role of Financial Bootstrapping in Handling the Liability of Newness in Incubator Businesses

Abstract

Recent research in entrepreneurship has examined factors that could reduce the challenges facing new businesses (the so-called ‘liabilities of newness’). Seeking to contribute to this research, this study examines the potential role of a financial bootstrapping approach (finding ways of securing resources on favourable terms). Even though financial bootstrapping has received increased attention in entrepreneurship research, our understanding of the relative importance of financial bootstrapping is undeveloped. This study focuses on new businesses established in Swedish university incubators and is based on data from a questionnaire sent to 120 new business founders. Given the role of incubators to provide resources and contacts on favourable terms, it can be argued that they represent an institutionalized arena in which new businesses can identify bootstrapping possibilities. The findings show that the possession of a financial bootstrapping approach is beneficial for handling the external liability of newness, whereas no significant effects were found on the internal liability of newness.