Early-stage Enterprises Research Articles

How to guide venture capital to startups? Evidence from China's Science and Technology Innovation Board

Venture capital (VC) plays a vital role in supporting startups. However, in many developing economies, venture capitalists' tendency to prioritize later-stage over early-stage investments constrains their capacity to fund startups. China's recent Science and Technology Innovation Board (STAR) market establishment, with its focus on innovation ability over profitability, enables high-tech startups to list at early stages. This improves exit prospects for VCs investing to the early-stage startups. Employing a regression discontinuity design, our empirical analysis demonstrates that the STAR market establishment attracts additional capital to the VC market and guides VCs toward earlier-stage startups. Mechanism analysis indicates these effects stem from improved VC exit returns rather than heightened exit activities. Our findings underscore the efficacy of specialized stock markets for startups in channeling venture capital towards small and early-stage enterprises. These findings provide valuable insights for developing countries seeking to leverage VC for startup growth.

Leveraging Qardh al-Hasan within Islamic Finance: A Conceptual Framework for Advancing Sustainable Development among Early-stage Enterprises

Early-stage enterprises significantly contribute to economic development through innovation, job creation, and productivity enhancement. However, these enterprises face substantial financial challenges, particularly in securing capital that adheres to ethical and Sharia-compliant principles. This paper investigates the use of Qardh al-Hasan, an altruistic loan concept in Islamic finance, as a strategic tool for supporting sustainable development initiatives within early-stage enterprises. By leveraging Qardh al-Hasan, which embodies social solidarity and economic justice in Islam, the study proposes a conceptual framework to enhance entrepreneurial resilience and sustainable business practices among nascent businesses. Employing a descriptive analysis and a framework-based review, the research explores strategies to optimize Qardh al-Hasan in financing early-stage enterprises, positioning it as an effective mechanism for addressing sustainability challenges. Key findings reveal Qardh al-Hasan’s potential in fostering sustainable development, while highlighting practical challenges such as default risk, management issues, and liquidity requirements. The analysis indicates a deviation of many Islamic financial institutions from the social objectives of Islamic finance, prioritizing economic growth over holistic development. The theoretical implications enhance the understanding of Qardh al-Hasan’s role in achieving economic and social justice, while practical implications advocate for its integration into modern financial systems to support entrepreneurship and reduce social inequality, emphasizing the need for adequate management and supranational support. This paper’s novelty lies in its innovative approach to repositioning Qardh al-Hasan within contemporary Islamic finance, proposing a comprehensive model that addresses both theoretical and practical challenges, thus advancing the sustainable development objectives of Islamic finance by integrating underprivileged segments into the formal economy. Keywords: Sustainable development, Qardh al-Hasan, Islamic finance, early-stage enterprises.

The Impact of Digital Finance on the Survival and Growth of SMEs: Evidence from China

ABSTRACT This study investigates the impact of digital finance on the sustainability and expansion of small and micro-sized enterprises (SMEs) in China. The findings reveal that regional digital finance significantly improves SMEs’ prospects for survival and growth, particularly in terms of business income. Digital finance primarily facilitates SMEs growth by alleviating credit constraints, expanding online operations, and enhancing access to information and knowledge. This benefit is most pronounced for entrepreneurs with limited capital, and early-stage enterprises. However, this transformation necessitates higher prerequisites for regional traditional financial foundation and digital competencies. This paper contributes to a deeper understanding of how digital finance plays a crucial role in enhancing SMEs prospects in emerging markets.

The Contribution of Innovation Spaces Processes on the Performance of Early-Stage Enterprises in Iringa-Tanzania

This study examines the relationships between crowdsourcing, ideation, and business plan competitions to evaluate the effect of innovation spaces on early-stage enterprises' performance. One hundred fifty participants were chosen for the study via convenience sampling from hubs in Iringa like SIDO TLED Hub, RLabs, Kiota Hub, and Agriedo Hub. Three goals were pursued: determining the impact of crowdsourcing on performance, examining the influence of ideation, and evaluating the contribution of business plan competitions. Factor analysis evaluated validity, while Cronbach's Alpha verified dependability. Both multiple regression analysis and Pearson correlation were used to analyze the data. Results reveal that ideation, crowdsourcing, business plan competition, and performance correlate positively. Recommendations: Early-stage companies should partner with spaces for resources and growth; innovation spaces should improve processes and support enterprises.

What Does Venture Capitalists Learn From IPO Failures?

Venture capital investors focus on early-stage enterprises, the market participants have limited information about their prospects. Their investment decisions involve complicated factors and potentially the failures in the past can affect their future investment decisions. In this paper, within the context of venture capital investment, I examined the impact of the rate of IPO failures in one sector on future investment in the same sector. However, the direction of effect is ambiguous. The learning effect from past failure can be positive if the VC investors gain valuable experience from it. Alternatively, the learning effect can be negative as it reveals the VCs incapability to invest in that given sector. I exploit a data set from Preqin and a fixed-effect model to help me identify results that are consistent with a positive learning story. This finding contributes to our understanding of how VC investors make investment decisions and how financial market participants react to failures more broadly.

The Ongoing Importance of Venture Capital in the Economy

An essential part of the economy, venture capital supports emerging businesses with strong growth potential financially and strategically. In exchange for stock, venture capitalists make investments in early-stage enterprises and start-ups, actively influencing their success and direction. These businesses can launch cutting-edge goods and services, generate employment, and stimulate economic growth thanks to their support. Additionally, venture capitalists often bring a wealth of industry expertise and connections to the table, providing valuable mentorship and guidance to the companies they invest in. In today's fast-paced, technology-driven market, venture capital is more important than ever. With the rise of new industries and the increasing pace of innovation, young companies need support to bring their ideas to life and compete with established players. Venture capital provides that support, providing the necessary funding, expertise, and connections to help these companies succeed. Despite the changes in the market and regulatory environment, the ongoing importance of venture capital in driving economic growth and innovation is clear. Whether it's through the creation of new jobs, the launch of groundbreaking products and services, or the development of entire new industries, venture capital is a vital force in the economy.

Social Aspirations in Early-Stage Enterprises. A Typology of Role Models and Influence Mechanisms

Role models are widely acknowledged, both in theory and in the practice, as important for influencing nascent entrepreneurs’ intentions and goals. Yet research about their role for social entrepreneurship has been scarce. This explorative study based on a cohort of 29 entrepreneurs in an accelerator program in Nairobi represents a first step to fill this gap. Relying on Role Model theory and Social Network theory the study analyses the advice exchange among the entrepreneurs during the program and provides a typology of role models for social impact goals and aspirations and it suggests two mechanisms (aspirational and instrumental) through which entrepreneurs learnt from role models about developing social goals and introducing them organically in their organization goal structure.

Institutional and self-efficacy effects on systemic entrepreneurship: evidence from South Africa

Research indicates that institutional weaknesses in several African economies often leads to uncertainty, but also provides opportunity so that different types of entrepreneurship may become more or less feasible in these economies. Recognizing that it is not always clear which institutions really matter, this study is important as it empirically examines the impact of formal and informal institutions, as well as the effect of entrepreneurial self-efficacy, on systemic entrepreneurial growth intentions. Hypotheses were statistically tested using primary data from early-stage enterprises (n = 292) in South Africa. Findings highlight a significant relationship between entrepreneurial self-efficacy as well as the normative institutional dimension and systemic entrepreneurship. By weaving in the entrepreneurial and institutional context of South Africa, this study has extended the theoretical and empirical reach of institutional theory to the domain of systemic entrepreneurship. Study implications relate to creating empirical links between the different institutional dimensions, self-efficacy and systemic entrepreneurship, which is vital for an African market setting as the context for entrepreneurship is often a distinctive one.

Critical financial and accounting issues of early-stage innovative enterprises

While the most important financial and accounting issues of early-stage enterprises with fast growth potential (startups) are widely covered in practice-oriented literature, academic studies do not deal with this subject. In the author’s opinion, this subject should receive more attention in academic writing, as inappropriate financial management can make it more difficult for startups to raise capital at a later stage of operation and, thus, to grow further. This paper is based on a sample of financial and tax due diligences of Hungarian startups. The authors intended to present some of the issues identified and relevant also to startups operating outside Hungary. The sample shows that due to a loss making operation in the early years, this type of companies can quickly use up their equity and, therefore, they need continuous ownership (equity) financing. The sample demonstrates that debt financing is not a viable option for this group of companies, the only option for them is venture capital financing. The authors confirmed the positive relation between startups and R&D&I. In their opinion, compliance with the rules and the optimization permitted by the rules themselves is highly significant for startups to manage their high upfront losses and to attain their general aim to raise investment capital. The financial and tax due diligences at startups allowed to identify several inappropriate practices due to complicated accounting and tax laws.