Start-up Firms Research Articles

First Evidence on Crowd Investing in Germany

Crowd investing has recently become an interesting possibility for young entrepreneurs to finance the start-up of new firms. This paper analyses the impact of education and gender of young entrepreneurs who finance their start-ups using a crowd investing platform. We analyse the crowd investing projects financed through the Companisto and Seedmatch platforms, which are the main crowd investing platforms in Germany. The study confirms that the majority of founders of crowd investing start-ups completed a university education. However, we find a surprisingly low-rate of female founders in crowd investing, although the gender structure do not influence the amount of crowd investing. Thus, the crowd investing does not facilitate the access to finance for new groups of entrepreneurs, but it rather facilitates the financing conditions for founders, who could also obtain a credit from the bank.

Female Entrepreneurship, Access to Credit, and Firmss Performance in Senegal

Despite an increase in the share of female-owned existing and new start-up firms in Senegal, there is still a wide belief that female entrepreneurs are discriminated against in the credit market. This paper empirically investigates such gender-based discrimination, and the extent to which it might be translated into lower efficiency. Using firm-level data and a methodological approach that consists of the data envelopment analysis, an endogenous switching regression and a propensity score matching, the paper finds no evidence to support the common wisdom that women are discriminated in the credit market. In addition, to the extent that they benefit from credit, female reap equal returns from the funds, efficiency-wise. These results do not however call for the abandonment of gender-biased public policies aiming at promoting access to credit and entrepreneurship, but suggest they be grounded on more robust footings such as managers’ education, firms’ ownership, sectorial activities with respect to capital intensity, and geographical locations.

The Cost of Inexperience

Rules and regulations inflict costs on regulated parties differently. This Article is the first to explore a discriminatory effect on startup firms. It reveals that entities that lack economies of scale, scope, and age are regulatory disadvantaged. To address this discriminatory effect, governments enact various size-based exclusionary rules. The article reveals, however, that these regulatory exclusions do not solve the problem. Rather, they create more harm. These exemptions often exacerbate the impact of the very regulation whose cost they seek to reduce. The Article makes the following additional three contributions to the current literature. First, it demonstrates that the relationship between size and regulatory effects is non-exclusive and extends to scope and age. Second, it points out to some overlooked effects of regulations on startup entities and their unregulated affiliates. Lastly, it provides policymakers with mechanisms to alleviate these latent externalities.

Managing inventory and production capacity in start-up firms

We consider the problem of managing inventory and production capacity in a start-up manufacturing firm with the objective of maximising the probability of the firm surviving as well as the more common objective of maximising profit. Using Markov decision process models, we characterise and compare the form of optimal policies under the two objectives. This analysis shows the importance of coordination in the management of inventory and production capacity. The analysis also reveals that a start-up firm seeking to maximise its chance of survival will often choose to keep production capacity significantly below the profit-maximising level for a considerable time. This insight helps us to explain the seemingly cautious policies adopted by a real start-up manufacturing firm.

Managing Ambidexterity: Resolving the Exploration and Exploitation Dilemma in Growth Phase of Start-Up Firms

This paper argues that the dilemma of exploration versus exploitation also exits in case of new ventures (start-ups) especially in their growth phase, and thus raises the need for investigating the mechanisms of how ambidexterity is managed in the growth phase of new ventures. For this we discuss the challenges of managing the duality of exploration and exploitation, and how this is relevant in a new venture’s growth context. The paper highlights how the top management characteristics and behavior may influence the balancing of this duality, and how it may affect the firm’s performance. The paper also suggests potential research areas on the issue discussed.

A service innovation framework for start-up firms by integrating service experience engineering approach and capability maturity model

The service sector contributes more than 70 % to the GDP of many countries in which their services should continually be innovated to improve customer satisfaction. This study reviews the literature from 1995 to 2014 in the field of service innovation, service experience and engineering, and maturity model. Results show that the existing service innovation frameworks lack a focus on business process improvement, particularly for start-up firms. It causes the startups not ready enough to deal with inevitable challenges that may be encountered in the future. Accordingly, this study proposes a novel framework that combines the service experience engineering method and capability maturity model of integration for service to develop a new innovative service and improve service quality process for start-up firms. A practical case is implemented by applying the proposed framework. A service innovation prototype system is developed on the basis of the case study to deliver a mobile campus merchandise purchasing service.

International Involvement and Production Efficiency among Startup Firms

The economic theory of small firms often requires a reasoning process distinct from those typically used for large multinational enterprises (MNEs), since small firms typically do not possess the resources MNEs commonly employ to outperform similar domestic firms. In the current analysis, we argue that new small firms with international sales can better predict their revenue stream than can comparably aged firms with only domestic sales, and, as a result, international selling firms have higher levels of technical productive efficiency. We employ 7829 firm-year observations from the 2007 to 2011 years of the Kauffman Firm Survey microdata sample in our analysis. A stochastic frontier model empirically supports the result that technical productive efficiency is positively related to the foreign sales ratio. These results hold after controlling for multiple relevant owner and firm characteristics, as well as accounting for potential endogeneity concerns.

The Exploration–Exploitation Dilemma: A Review in the Context of Managing Growth of New Ventures

The metaphor of ambidexterity has been used by researchers to refer to the ability of the organization to maintain dual attention on exploration and exploitation activities in order to survive and excel the present, and secure the future, by creating potential for sustainable growth in future. Managing this duality is a challenge as often the needs of both these activities are contradictory. With business environment becoming increasingly dynamic, it is becoming more essential for start-up firms to balance their attention and resource allocation for exploration and exploitation activities. In our interaction with several start-up founders for another research, we found that at times start-ups were too focused on exploring the new, and engaged in too much experimentation, and in the process lost the scope of exploiting the outputs of their exploration activities. At the same time, we found start-up firms which seemed to be getting over-engaged in exploitation. However, it is unclear how start-ups cope with the dilemma of exploration and exploitation. In this article, we raise the need for investigating the mechanisms of how ambidexterity is managed in the growth phase of start-up firms.

CHANCE NON-CONTROL AND ENTREPRENEURSHIP

The personality of entrepreneurs can have a large influence on entrepreneurial startups. The general locus of control, which is an element of the personality of entrepreneurs, is considered to be critical for the creation of entrepreneurial startups. Despite the generally acknowledged importance of one’s locus of control for entrepreneurial intentions and new firm startups, a research gap exists because less emphasis has been given to external locus of control, in particular chance control. Chance non-control can be defined as a person’s disbelief in chance- or luck-based outcomes. In this study, a country-moderated hypothesis about the relationship between a person’s chance non-control and his or her entrepreneurship (activities or intentions) was developed and empirically tested by using data collected through a structured questionnaire from 645 students in three countries (China, Finland and Slovenia). Regression analysis was used to test the hypothesis. Based on the findings, which are partially in support of the moderated hypothesis, recommendations for research and practice are proposed. The key contribution of the study is the explanation of the role of chance non-control in entrepreneurship and the notion the relationship between chance non-control and entrepreneurship tends to be moderated depending on uncertainty avoidance.

Patents as quality signals? The implications for financing constraints on R&D

ABSTRACTInformation about the success of a new technology is usually held asymmetrically between the research and development (R&D)-performing firm and potential lenders and investors. This raises the cost of capital for financing R&D externally, resulting in financing constraints on R&D, especially for firms with limited internal resources. Previous literature provided evidence for start-up firms on the role of patents as signals to investors, in particular to Venture Capitalists. This study adds to previous insights by studying the effects of firms’ patenting activity on the degree of financing constraints on R&D for a panel of established firms. The results show that patents do indeed attenuate financing constraints for small firms where information asymmetries may be particularly high and collateral value is low. Larger firms are not only less subject to financing constraints, but also do not seem to benefit from a patent quality signal.

Entrepreneurship and economic development in cities

Policy makers have identified the relationship between entrepreneurship and economic development. Yet, little is known about how this relationship varies over time in cities with different market sizes. This study examines the link between entrepreneurship and economic development using a panel of 127 European cities between 1994 and 2009. We found that the immediate economic development impact of new firm start-ups is positive for both small-/medium-size cities and large cities. The relationship is U-shaped for large cities, with the indirect effect taking 7 years, but the indirect effect does not occur in small-/medium-size cities. We offer useful information for policy makers, practitioners, and scholars.

Start-up firms’ networks for innovation and export: facilitated and constrained by entrepreneurs’ networking in private and public spheres

Research on how start-up firms utilize networks has focused on direct effects of either the personal network around the entrepreneur or the formal collaboration network around the firm. Combining those approaches, we model how a firm’s collaboration network is embedded in the personal network around the entrepreneur. With data from the Global Entrepreneurship Monitor on 8918 start-up firms in 40 countries surveyed during 2012–2013, we examine (1) how entrepreneurs’ networking in private and public spheres is impacting firms’ collaborative networking, (2) how both the personal network and the firm network are impacting performance in forms of innovation and exporting, and (3) how embeddedness of the firm network in the private and public sphere networks around the entrepreneur is affecting innovation and export. The analyses show that the firm network as well as innovation and export are enhanced by the networking in the public sphere, but reduced by networking in the private sphere. Moreover, the benefits of firm network for innovation and export are strengthened by networking in the public sphere but weakened by networking in the private sphere. Finally, we find that innovation is a driver for export, and that this benefit is enhanced by networking in the public sphere, but decreases with networking in the private sphere. These findings refine our knowledge of the functioning of firms’ networking for innovation, especially the positive effects of networking in the public sphere and negative effects of networking in the private sphere.

The role of informal capital on new venture formation and growth in China

Abstract This study examines the nature and role of informal capital used by micro-firms in the dynamic emerging market of China. Using a unique source of data for 260 urban entrepreneurs, this study provides empirical evidence that entrepreneurs’ personal savings and family funding are important sources of start-up capital. However, household income was found to be the most important funding source in driving firm growth over time. This research directly addresses the lacuna of studies on entrepreneurship in emerging economies and contributes to our understanding of the critical role informal capital plays in the Chinese entrepreneurial process. Overall findings suggest that informal capital is still predominantly used over formal capital sources for financing firm start-up, underscoring the slow transition in China from an emerging to a modern economy.

Tourism Entrepreneurship – Review and Future Directions

Entrepreneurship has received increased attention within tourism research, reflecting the important role of entrepreneurs and new firm start-ups within the tourism industry for innovation and value creation. Although it is expanding, the literature on tourism entrepreneurship remains dispersed. It embraces a number of different issues, perspectives and approaches, and thus far, little congruent knowledge has been developed. This paper addresses this gap by reviewing and analysing the current literature on tourism entrepreneurship. We examine the development in published articles from 2000 to 2012 and discuss how the literature on tourism entrepreneurship relates to the mainstream entrepreneurship literature in terms of research questions, theoretical perspectives and applied methods. We differentiate between a convergent approach in which studies build on mainstream entrepreneurship theorising to examine the context of tourism and a divergent approach in which studies consider tourism entrepreneurship to be different from other types of entrepreneurship, thus needing specific theoretical insights. Trends reflecting convergent and divergent approaches are identified. Furthermore, we discuss potential contributions from tourism entrepreneurship research to the mainstream entrepreneurship literature and vice versa. Based on the findings from the review and analysis, we suggest future directions for research on tourism entrepreneurship.

Banks in the Venture Capital Market

This paper analyzes bank lending in the venture capital market. I develop a principal-agent model in which startup firms have a growth opportunity and need funds to invest. The realization of non-verifiable returns depends on the fund invested and the managers/entrepreneurs' effort, which is unobservable to the banks. I show that convertible debt contracts can mitigate ex-post inefficiency arising from firms' strategic default due to non-verifiability of returns. I further generalize the model by considering moral hazard of the managers/entrepreneurs. In this case, the optimality of convertible debt contracts for startup firms is shown. Finally, I develop a dynamic model in which I take into account the relationship values of the startup firms and their banks. I show that in this case convertible debt contracts are optimal as well, which is consistent with the empirical evidence (Kaplan and Stroemberg, 2000). In addition, when firms' relationship value is low and banks' relationship value is high, banks do not convert and thus the lending relationship between banks and firms is maintained. This result is also consistent with the evidence that banks participate in venture capital finance in order to build the lending relationship early on with potential clients (Hellman et. al., 2008).

The Role of Personal Factors in the Location Decision of Software Services Start-up Firms

This paper explores the factors which influence the business location decisions of start-ups, focusing in particular on the role of personal factors. Established explanations of industry location emphasize proximity to firms in the same or related industries and proximity to a wider set of business services, though recent research suggests that personal factors may play an important role in explanations of industry location—particularly in technology-enabled sectors. A survey of 97 new firms, founded between 2008 and 2012, in the Irish software services sector, shows that the business location decision is influenced by the personal motivation of entrepreneurs to attain a desired quality of life, and that this outweighs economic factors such as proximity to firms within the same or related industries, proximity to a broader set of supporting business services, infrastructure or the availability of government support schemes. Personal factors are particularly important to firms located outside the Dublin metropolitan area and to home-based businesses. This has important policy implications for national and regional governments seeking to encourage entrepreneurship in technology-enabled service sectors.

Once an entrepreneur, always an entrepreneur? The impacts of skills developed before, during and after college on firm start-ups

Abstract By allowing agents to switch from entrepreneurship to wage work and vice versa over the life cycle, this study proposes a dynamic Jacks-of-All-Trades (JAT) model where entrepreneurs invest in highly varied skills to manage their business. We simultaneously endogenize human capital investment and occupational decisions. Using the survey data of Iowa State alumni graduating between 1982 and 2006, we find that the probability of selecting a broad curriculum, having a more varied career, and becoming an entrepreneur are jointly positively correlated. Academic diversity is found to be initially important in starting a business shortly after completing schooling, but its importance declines over time.

Small Molecules On Route To Riches

Already winners with blockbuster biologic drugs for autoimmune disorders, major pharmaceutical companies are wagering on start-up firms targeting the same diseases with small molecules. Since 2010,...

Innovation in start-ups: Ideas filling the void or ideas devoid of resources and capabilities?

We investigate how access to different types of resources affects the success of entrepreneurial start-up firms at early stages of development in small isolated economies by studying 12 start-ups based in New Zealand. We find that successful commercialization of innovations depends on the availability of complementary assets, and that capability-based resources, especially dynamic capabilities, have a greater impact on competitive advantage of start-ups than other intangible and tangible assets. For the start-ups in our study, alliances with partners are particularly important, and so the ability to form alliances is a key capability. Successful start-ups leverage their available resources to attract alliance partners in order to access necessary complementary resources. The start-ups in our study clearly demonstrated the ability to attract partners locally but struggled to do so internationally, thereby limiting their growth potential.

Valuating the Value and Risk of International Start-up Ventures

Fair value depends on an estimate of the both cash flow and risk, which is not an easy task when valuing startup firms. We present a measurement instrument for the future risk of small and risky firms that follows the major propositions in accounting and finance. It differs from other valuation instruments in looking simultaneously at the assets and liabilities. We test the VBB as a measure for value over time by using a database of VC backed innovative companies that oridary DCF valuation fails to capture their value. We show that the VBB is an effective way to capture the dynamics of the value of high risk firms.