Start-up Firms Research Articles

Alliances and legitimacy among technology-based start-ups

Technology based start-up firms have historic importance as outlets for new technology product. A major challenge for start-ups commercialising inventions is to attract enough external resources until they achieve mainstream market acceptance for new technology products. Lack of performance history and novel technologies combine to create liabilities that they must overcome to gain legitimacy in the eyes of stakeholders and gain access especially financial resources. This makes strategies to increase legitimacy and reduce the likelihood for failure among technology-based start-ups (TBS) a persistent pursuit in entrepreneurship research with strong implications for practice. Forging alliances with important stakeholders show relevance and indicate legitimacy. Using data from 173 start-ups working with energy efficient technologies, this analysis found evidence to suggest that forging alliances and the public declaration of these can influence legitimacy among TBS. The influence however, it not straight forward and has implication for both research and practice.

Alliances and legitimacy among technology-based start-ups

Technology based start-up firms have historic importance as outlets for new technology product. A major challenge for start-ups commercialising inventions is to attract enough external resources until they achieve mainstream market acceptance for new technology products. Lack of performance history and novel technologies combine to create liabilities that they must overcome to gain legitimacy in the eyes of stakeholders and gain access especially financial resources. This makes strategies to increase legitimacy and reduce the likelihood for failure among technology-based start-ups (TBS) a persistent pursuit in entrepreneurship research with strong implications for practice. Forging alliances with important stakeholders show relevance and indicate legitimacy. Using data from 173 start-ups working with energy efficient technologies, this analysis found evidence to suggest that forging alliances and the public declaration of these can influence legitimacy among TBS. The influence however, it not straight forward and has implication for both research and practice.

The Effects of Exports by Small Firms on Their Credit Ratings, Bank Loans and Bank Loan Costs in Korea

Purpose - We investigate the effects of exports by very small Korean startup firms with their initial asset size around 1 or 2 million US dollars, in comparison with non-start ups, on their credit ratings, bank loans and bank loan costs. Design/methodology/approach - We use 51,580 observations of 11,293 firms provided by KIS-Value data base from 2009 to 2015 and apply fixed effects panel regression models. Findings - Findings are as follows. First, new startups have higher credit ratings by 0.0527 in the 1- 15 grade range, compared with non-startups. However their bank loans are higher by 0.019 percentage points while their bank loan costs are 0.0446% percentage points lower than non-startups. Second, exports by startups have a negative effect on credit ratings, lowering such ratings by 0.180 grade points compared with non-startups. However, exports by startups increase their financing through bank loans by 1.12% percentage points and decrease their borrowing costs by 0.570% percentage points than non-startups, per one percent increase in exports. For small firms as a whole, exports show similar results in credit ratings, bank loans and financing costs. Research implications or Originality - The results suggest that corporate performance in exports provide a negative signal in credit rating for small startups. Small startups effectively finance funds at a lower cost for at least the first three years after their establishment.

Support and development of small and new firms in rural areas: a case study of three regional initiatives

This paper is based on qualitative analysis and addresses the important topic of small business entrepreneurialism in rural areas and its special conditions and needs. Our aim is to present examples of and suggestions for how to encourage firm start-ups and the continuation possibly also the development and growth of existing firms. The paper is based on three cases that illustrate (1) challenges in the support system in rural areas, (2) various forms of support that could be used in rural areas, and (3) expectations that are eligible to put upon support activities designed for rural areas. The main findings are that (1) that successful support of rural businesses requires a critical mass of regional entrepreneurs, firms, and support actors, (2) diversity is critical, and the various actors must be coordinated to carry out the desired measures effectively, (3) expectations for growth and orientation of the firms must be realistic because broad support is more important than targeted support, and (4) we were able to show that a cross-boundary collaborative work culture that avoids both thought silos and business silos and places no value on prestige should pervade all areas of business support.

Design practices for strategic innovation in start-ups

This paper looks at the use of design practices in start-up firms for the creation of strategic advantage through product/service innovation. Start-ups face non-negligible challenges during the early-stage of development. The research questions examined to what extent design practices can provide the leverage needed to face these challenges. A 4-day Innovation by Design Challenge workshop provided the field for the research carried out. Participants were start-up firms each working together with two designers to form six teams. Methods used included: observation for the mapping of team activities; a short self-report questionnaire and; pre- and post-workshop semi-directed interviews with the start-ups. The findings support the idea that design practice integration into the initial development of a start-up can indeed provide a lever for success and provide the start-up with the strategic vision needed to go through the early-stage and bring their products/services to market successfully.

What is a startup firm? A methodological and epistemological investigation into research objects in economic geography

This paper is an inquiry into the process of defining the parameters of economic geography research from both a methodological and epistemological point of view. I ask what it means that research parameters are often difficult to define, while also acknowledging that strictly defining research may be disadvantageous in efforts to retain complexity and nuance. I draw on research with startup firms in San Francisco, California and Kitchener-Waterloo, Ontario and insights from feminist economic geography and post-structuralist theory. ‘Startup,’ as denoting at once a discourse and an actual type of firm or working practice, is privileged by economic policy in both the US and Canada as promising regional economic development driven by technological- and knowledge-based forms of entrepreneurship. Startup purports a new, modern, and innovative form of work. Yet separating out the startup discourse from startups themselves, e.g., for purposes pertaining to the practicalities of research design, can be difficult. I argue that it may be useful to hold open the definition of one’s research objects, in order to allow multiple understandings of terms to proliferate, so as not to circumscribe in advance the set of interpretations that might otherwise be possible. I make this argument through two interrelated claims: first a methodological claim around what it means to define research around the term startup; and second an epistemological claim about how uncertain terms like startup can be conceptualized as economic performatives. I situate these two claims as a prism for thinking through the complexity and problematic of defining research in general.

The Study on the Difference in Corporate Performance and Employment Outcomes According to the Results of Equity-Based Crowdfunding Investment

The purpose of this study is to identify the difference in firm performance and employment growth between successful and failed capital procurement through equity-based crowdfunding. We conduct an empirical analysis using entire crowdfunding projects that attempted to raise capital through equity-based crowdfunding in South Korea in 2016. We summarize our findings as follows. Descriptive statistics show that the survival rate, sales growth rate, profitability growth, absolute employment growth, and employment growth rate of companies with successful crowdfunding are higher than those of companies with failed crowdfunding. However, from the difference analysis, we do not find a significant difference in the survival rate, sales growth rate, and profitability growth between companies with crowdfunding success and companies with crowdfunding failure. We find that the absolute employment growth and employment growth rate are significantly higher for companies that succeeded in crowdfunding projects compared to companies that did not. In this study, we find that the characteristics of these firms that are conducting or verifying new projects through equity-based crowdfunding financing are similar to those of prior studies results confirming the short-term effects of entrepreneurial activities or new business activities on economic performance and employment growth. In particular, it is very meaningful to confirm that the direct effect of employment growth is also found in start-up firms that raise capital through equity-based crowdfunding. By investigating the difference in firm performance and employment outcomes according to the results of equity-based crowdfunding investment, this study provides useful insights to investors for their efforts to validate participation in crowdfunding. Also, our study raises important policy implications for regulators in their efforts to resolve unemployment and the lack of capital problem for startups and new businesses.

An Empirical Study of Sources of Early Stage Start-Up Funding for Innovative Startup Firms: A Study of Five States of India

Over the past few years, startups have been seen as a taste of the season for India. This has resulted into the materialization of a number of home grown new companies across the country. This development of a novel scenario has been due to the major contributions that led to the mega funding ploughed into most of these new companies between 2007 and 2015. This paper represented the growth of startup companies in India, their types, and possible sources of financing with special emphasis on financing these ventures in the country. In this research, we examined the defining stages of development for startups as well as their funding sources at each stage. The objective of this research paper was to investigate whether India made a shift from conventional to the modern methods of financing. Therefore, this research can be helpful in superior understanding about the funding strategies of entrepreneurial ventures. For conducting the research, a total of five states, that is, Odisha, Chhattisgarh, Jharkhand, West Bengal, and Madhya Pradesh were taken into consideration. This paper is primarily based on survey questionnaires, and the chi-square test was adopted to ascertain the results derived from the information gathered from the respondents. The results revealed that there is an urgent need to provide financial literacy to startups and increase awareness on the activities of angel/VC financing through greater involvement with educational/research institutions and incubation centres.

Scaling the Innovativeness of Start-ups in India

The primary objective of this study is to develop and validate a multi-dimensional scale for measuring the innovativeness of start-up firms in India. Start-ups, by virtue of their lean structure, are in a position to innovate quickly; and they iterate fast enough to get desired outputs in their innovation to market journey. Wang and Ahmed (2004, European Journal of Innovation Management, 7, 4, 303–313) developed and validated their construct by drawing their sample from within the UK (England, Wales and Scotland). This study investigates whether the construct retains its structural consistency in the context of start-up firms operating in India. Primary data was collected through a predesigned self-administered questionnaire from a random sample of 220 respondents working at the senior executive level in start-up firms in India. The period of study was three months from January to March 2018. SPSS (Statistical Package for Social Sciences) version 20.0 and AMOS (Analysis of Moment Structure) version 20 were used to compute and analyse the data. The most significant contribution of the present study is a construct for measuring innovativeness based on statistically significant evidences which can be meaningfully used to compare innovation across start-ups in different industries and regions.

The Impact of Digital Social Media Networks within Communication Management for Start-ups.

Research Summary. Social networks command increasing attention from practice and academia, yet the implementation of social media in strategic communication for start-up firms remains under-studied...

Nominations closing soon for 10 Start-Ups to Watch

Nominate a chemistry-based start-up for C&EN’s 10 Start-Ups to Watch in 2019. The program, which launched in 2015, highlights start-up companies and their founders who are developing and bringing to market world-changing chemistry innovations that span the breadth of the chemical enterprise. C&EN also seeks to highlight the diversity of the founders of these start-up firms, including women, underrepresented minorities, and those working outside the US. Nominate a start-up by Aug. 1 at cenm.ag/startups-2019.

GROUP DECISION-MAKING MODELS FOR VENTURE CAPITALISTS: THE PROMETHEE WITH HESITANT FUZZY LINGUISTIC INFORMATION

Venture capitalists (VCs) have long been preoccupied by the issue of selecting a promising start-up firm, whereas, ranking the available start-up firms is an effective way to solve this issue. In this paper, the PROMETHEE is chosen to be the fundamental ranking method. Also, the hesitant fuzzy linguistic term set is a suitable tool to simulate VCs’ evaluation information. Additionally, as the deepening of social division of labor and specialization of individuals, group decision making is famous for improving decision-making quality. Moreover, in the decision-making process, VCs exhibit behavioral characteristics which is depicted well by prospect theory that VCs are risk averse for gains and risk seeking for losses and rely on the transformed probability to make their decisions rather than unidimensional probability. Thus, a group prospect PROMETHEE with hesitant fuzzy linguistic information is constructed for VCs to make a better decision. Then, the proposed method is applied to rank start-up firms and the comparative analyses are made as well. It confirms that the group prospect PROMETHEE is better in describing the common behavioral characteristics of VCs and in enhancing the quality of evaluation.

Cloud computing in high tech startups: evidence from a case study

ABSTRACTThis paper focuses on the implementation of cloud-based systems in startups to answer how and why hi-tech startups use cloud computing, an overlooked question to date. Thus, referring to an extended version of Ross and Blumenstein [2015. “Cloud Computing as a Facilitator of SME Entrepreneurship.” Technology Analysis & Strategic Management 27 (1): 87–101] framework, encompassing issues of context and culture following Spanò et al. [2019. “Context, Culture and Control: A Case Study on Accounting Change in an Italian Regional Health Service.” Journal of Management and Governance. doi:10.1007/s10997-019-09458-0], we analyse cloud adoption in startup firms and rely upon a case study of an Italian hi-tech startup. The case study allowed us to tap into the main issues relating to cloud implementation that is increased opportunities, reduced costs, scalability, access to global markets, and access to international venture capital. The results offer interesting insights to the literature on cloud computing, and also have some managerial implications in that they better unfold the effects played by context and culture.

Correction to: Do initial financial conditions determine the exit routes of start-up firms?

original version of this article unfortunately contained mistakes. On page 18, the sentence “The first-order terms of MCR are positive at least at the 1% significance level in all the columns in Table 6.” Moreover, while the interaction term of lnE and MCR is insignificant in column (iii), that of E/F and MCR is negative at the 1% significance level in column (v). On page 21, the sentence The sign of the estimated coefficients for merger is opposite to that for failure.

Decision Models to Find a Promising Start-Up Firm with Qualiflex under Probabilistic Linguistic Circumstance

QUALIFLEX is a flexible method to solve the multi-criteria decision-making problem with a few alternatives. Moreover, the linguistic term is a very general way used by decision makers (DMs) to express their real perceptions. In particular, the probabilistic linguistic information, including the probability of each linguistic term, can simulate the vague perceptions of the DMs well. Therefore, the main contributions of this paper are constructing two novel QUALIFLEX with probabilistic linguistic information. First, based on the classical QUALIFLEX, it has been extended under probabilistic linguistic circumstance. Secondly, it is common for the DMs to have different risk attitudes for gains and losses when making their decisions under uncertainty, which is well explained by prospect theory (PT). Hence, PT has been integrated into the extended QUALIFLEX. Then, in this paper, a prospect QUALIFLEX is proposed as well. The feasibility and validity of the proposed methods have been verified by a numerical example in venture capital. The comparative and simulated analysis shows that the latter method with prospect framework is more appropriate than the former one because of the inherent psychological behaviors of the DMs and its excellent ability in identifying the similar alternatives. Furthermore, the ranking results derived from the prospect QUALIFLEX do not change with the different values of parameters. It reveals that the prospect QUALIFLEX is stable and reliable.

Do initial financial conditions determine the exit routes of start-up firms?

This study investigates the impact of initial financial conditions on the post-entry performance of firms in a sample of 16,185 Japanese joint-stock companies. We examine whether initial financial conditions, including entry regulations, affect the duration of survival among Japanese start-up firms, distinguishing between failure and merger. We provide evidence that start-up firms that rely more on equity than on debt financing are less likely to fail within a shorter period, although we find little evidence that initial equity size has a significant effect on the time to failure of start-up firms in our sample. Moreover, we find the negative effect of equity financing on the time to failure to be greater for start-up firms founded following the abolition of regulations for minimum capital requirements. Furthermore, the results reveal that start-up firms with larger initial equity capital are more likely to exit through merger, indicating that the effects of initial financial conditions depend on the type of exit route.

The local impact of increased numbers of state employees on start-ups in Norway

ABSTRACTThe purpose of the article is to assess the impact of concentrations of state employees on local growth and development. Local multiplier effect theory suggests that the increased local demand for state employees, especially highly skilled employees, would stimulate the local supply of goods and services, and hence local development. However, other theories of regional development have shown that factors such as having a university or city size may also explain why some municipalities with a high percentage of state employees grow faster than others. Following a multilevel panel data analysis of Norwegian municipalities, the author found that the percentage of state employees did not have any effect on local development, measured in terms of the relative number of start-up firms or population growth. While there was a small positive effect of state employees in the bivariate model, state employees did not have a significant effect on local development when controlling for relevant factors such as municipality size or the presence of universities. The author concludes that the relocation of state employees may be a rather limited tool for stimulating local and regional growth and, if applied, policymakers should consider how the relocation could stimulate place-sensitive development in individual municipalities.

Valuation Method of Equity-based Security Token Offerings (STO) for Start-Up Companies

The major difficulty to value equity security token offerings (STOs) is the gap in the corpus of finance theory to quantify the discount rate for start-up companies. In this paper, we develop a novel valuation method of equity-based securities token offerings (STO) for start-up companies. The closed-form discount rate function discovered in this paper is time-dependent and piecewise. The first part of the function is exponential; the second part is a power function. The reason is that, in the early years, the probability of survival of start-up firms descends more rapidly than in late years. The probability of survival function discovered has a remarkably good fit with empirical data- for the total of firms and ten industry sectors for which data is available. For the total of firms, we found that the highest discount rate has a 27.0 to 31.8% range when the liquidation value of the non-surviving start-up project is zero; this is considerably higher than observed discount rates of projects for mature firms (7.5%) but considerably less than some published discount rates for start-up projects financed by Venture Capital firms (40.6 to 70% range). To demonstrate the model, we work a valuation example in section six. A valuation method for equity STOs will help to develop a more transparent market for start-ups wanting to raise capital. Most importantly, our results show that for many start-up firms, equity STOs could be an economical alternative to raise capital.

The role of regulatory focus and cognitive style in business angels’ evaluation of an investment opportunity

ABSTRACTThis paper investigates how two cognitive mechanisms of business angels – regulatory focus and cognitive style – contribute to the process of evaluating an investment opportunity. Analyzing both qualitative and quantitative data collected from an international sample of business angels, indicates that both promotion and prevention regulatory foci are directly associated with the greater likelihood of a business angel positively evaluating an opportunity, and that planning cognitive style moderates these relationships. This research contributes to the existing literature on the phases of business angels’ investment process. The findings are also important for understanding the cognitive underpinnings of an early evaluation of an investment opportunity. Prior research has suggested that a business angel’s early evaluation of an investment opportunity critically influences success in raising equity financing, which is of critical importance for start-up firms in overcoming the liability of newness in their early stages of development.

Incentives for research agents and performance-vested equity-based compensation

This paper studies the agency problem between a firm and its research employees in a dynamic optimal contracting setting. We implement the optimal contract by a risky security, which can be created using the equity of the firm, and a sequence of performance-based holding requirements. This result provides a rationale for using performance-vested equity-based compensation in R&D-intensive start-up firms.