High-growth Start-ups Research Articles

Funding Black High-Growth Startups

Funding Black High-Growth Startups

Cheating in the evaluation. An expedient to estimate the impact of intangibles on the enterprise value of the high-growth start-ups

This study investigates the effect of investments in intangible fixed assets and human capital on the Enterprise Value (EV) of Italian high-growth startups (HGSs). To test our hypotheses, we conducted several Ordinary Least Squares (OLS) regression analyses on a dataset comprising 782 HGSs. The EV was esti-mates using the Discounted Cash Flow (DCF) method. Our findings reveal a posi-tive and statistically significant relationship between investments in intangible as-sets and EV. However, investments in human capital and highly skilled workers show a negatively relationship with EV. Lastly, a positive and statistically signifi-cant relationship between value-added per employees and the EV of HGSs has been identified. This study offers valuable insight into the process through which new firms gener-ate value. By strategically investing in intangible assets and human capital, startups not only enhance their probability of survival but also improve their growth potential. This allows these companies to overcome the challenges of the early stage and embark on a sustainable growth process. To spotlight the unique value drivers of these companies, unlike prior studies, we manually estimate the EV. We have employed the DCF method by playing the cards face up: we used the actual cash flows realized by the HGSs during the study period instead of rely-ing on forecasts. We have therefore "cheated" to measure the value created by the HGSs. This research can be considered a pioneering study that significantly con-tributes to the ongoing debate on the value creation process in fast growing startups.

Funding Black High-Growth Startups

Funding Black High-Growth Startups

What conditions favor high-potential entrepreneurship? Unpacking the nexus between the industrial structure and startup typologies

In this paper, we question the implicit assumption that more entrepreneurship drives more innovation and growth, asserting that specific typologies of entrepreneurship are responsible for these phenomena. A growing number of studies has analyzed this relationship while focusing on the overall level of entrepreneurship. This paper exploits recent advancements in measuring the sophistication and connectedness of economic systems, brought by the notions of economic complexity and relatedness, to study the nexus of industrial structure and high-potential forms of entrepreneurship. The present study uses a panel dataset for Italy for the period 2015–2019. The results show a differentiated pattern among the high-potential startups considered, with relatedness and complexity having a positive effect for innovative startups, a negative one for high-growth startups, and no effect for pioneers. These results inform potential entrepreneurs of the importance of analyzing how external conditions can have distinctive effects on the process of opportunity identification among different typologies of high-potential startups.

The BharatPe debacle: growth at the cost of governance?

Learning outcomes The case is aimed at providing students with an opportunity to understand various aspects of corporate governance and the consequences of poor corporate governance. The case addresses the following objectives: The students need to assess the role of the board in implementing corporate governance. The students should be able to explain the conflicts experienced by various stakeholders in an organization. The students need to evaluate the balancing act of growth and governance in a startup. The students should be able to determine the current state of business sustainability of the high-growth startups in India. Case overview/synopsis The case presents the challenges faced by the CEO of BharatPe, Suhail Sameer. Beginning in 2022, Bharatpe was in deep trouble as there were allegations of financial mismanagement, toxic work culture and widening losses. Co-founder Ashneer Grover and his wife Madhuri had to leave the company following charges against them. As Grover was the face of the company, Sameer would have to quickly act on filling the void and reassuring investors. Because of the uncertainty, scores of employees had already quit or were looking for other jobs. Questions were also raised about the board’s inaction and lack of proactive measures. After a meteoric rise for three years, BharatPe was struggling to survive the whole episode and put its focus back on business. Complexity academic level The case is intended for MBA students in corporate governance, organizational behaviour, business ethics and strategic management areas. As the case reveals the impact of poor corporate governance, it can also be used for executive training purposes on corporate sustainability, governance and leadership with a special focus on Indian startups. Supplementary materials Teaching notes are available for educators only. Subject code CSS 11: Strategy.

Being a High-Growth Startup Founder as a New Social Risk in Finland

Being a High-Growth Startup Founder as a New Social Risk in Finland

When Do Startups Scale? Large-scale Evidence from Job Postings

Scaling at the right time is a critical challenge for high-growth startups, but little is known about this timing due to a lack of empirical measurement. As startups formally hire professional managers and sales personnel to accommodate for exponential growth in employees and customers, we propose that the timing of scaling can be measured using the first manager and sales job postings. Leveraging a dataset of online job postings, we show that startups, on average, begin scaling four years after founding. We also find that, despite potential first-mover advantages, early scalers are more likely to fail but not more likely to achieve an IPO or a large acquisition. We theorize that this increase in failure occurs because scaling early can curtail experimentation on product-market fit.

A Life Cycle Model of Firm Value

ABSTRACT Most business valuation formulas are designed for profitable firms experiencing constant growth, even though in practice firms tend to transition from loss-making, high-growth startups to mature, stable enterprises. This paper introduces a life-cycle valuation model that accommodates this evolution in growth and profitability by treating investment expenditures and revenues as a function of firm age. The model's predictions regarding the time dynamics of common valuation multiples and financial ratios align well with observed financial data. The life cycle model can be estimated at the firm level from a few basic accounting variables and delivers estimates both of firm value and of the firm's cost of capital. Firm value estimates show a log-correlation with observed stock market values of more than 90 percent. JEL Classifications: D21; G12; G17; G31; G32.

Funding Black High-Growth Startups

Funding Black High-Growth Startups

Fasten Your Seatbelts: A Case Study on Online Travel Portals in India

This case unravels the market dynamics and consolidation of online travel portals in India whose strong buoyant force ushered a new era for the Indian start-up ecosystem. Several talented and risk-taking individuals followed the vestiges of global technology start-ups and found avenues amalgamating technologies and customers’ need for better services. Based on existing narratives and secondary data, this case delves deep into the decision dilemma covering a wide range of challenges such as capital crunch, market forces, and nuances of mergers and acquisitions (M&A). Furthermore, this case helps in understanding the decisions and the rationale behind them in a high growth start-up ecosystem.

Employee Non-compete Agreements, Gender, and Entrepreneurship

I contribute to the literature on institutions, gender, and entrepreneurship by showing that macrolevel institutional policies that do not explicitly target women nonetheless discourage them from leveraging prior professional experience—their own and that of others—in founding new ventures. Most ventures fail, but chances of success are greater if founders can bring to bear their professional expertise. However, employee non-compete agreements enjoin workers from leaving their employer to found a rival business in the same industry. Thus, non-competes add legal risk to business risk. To the extent that women exhibit greater risk aversion, the threat of litigation from their ex-employer may act as a sharper brake on startup activity than for men. Examining all workers who were employed exclusively within 25 states and the District of Columbia from 1990 to 2014, I find that women subject to tighter non-compete policies were less likely to leave their employers and start rival businesses. Non-competes increase the risk of entrepreneurship by making it harder to hire talent with relevant experience, shifting women away from higher potential ventures. A review of thousands of filed lawsuits suggests that firms do not target women in non-compete cases. Rather, it appears that non-competes disproportionately discourage women from leveraging their professional networks in hiring the sort of talent necessary for high-growth startups to succeed.

Common Ownership and Entrepreneurship

We complement the literature on common ownership by presenting two new observations from entrepreneurial start-ups. First, given the increase in common ownership of start-ups by venture capital investors, inclusion of high-value start-ups in standard common ownership measures may actually increase aggregate measures of common ownership. Second, we suggest that even if public-firm common ownership leads to collusive inefficiency and higher prices in the short term, it may also create opportunities for entry of innovative high-growth start-ups. Consistent with this, we document that entrepreneurial activity and common ownership of start-ups tends to be higher in industries with higher common ownership among public firms.

Innovation characteristics of high-growth startups: the Korean case startups

Efforts to overcome low growth traps are ongoing worldwide. As high-growth startups substantially contribute to the economy, it is critical to understand what allows startups to achieve high-growth. Previous research has generally focused on high-growth firms and there is a lack of understanding in the difference between high-growth and general startups, especially in terms of innovation. To address this gap, this study examines the innovation characteristics of high-growth startups by analyzing Korean Innovation Survey data with logit regression and decision tree models. Previous studies have shown that high-growth firms are associated with product innovation. We show that process innovation is the most critical factor in creating high growth in startups. This result extends the finding of previous literature that process innovation not only increases the survival rate of startups, but also has a significant effect on achieving high growth. These results suggest that process innovation should be considered important when exploring innovation strategies or designing support policies for startup growth.

The Nature of Firm Growth

About one-half of all startups fail within five years, and those that survive grow at vastly different speeds. Using Census microdata, we estimate that most of these differences are determined by ex ante heterogeneity rather than persistent ex post shocks. Embedding such heterogeneity in a firm dynamics model shows that the presence of ex ante heterogeneity (i) is a key determinant of the firm size distribution and firm dynamics, (ii) can strongly affect the macroeconomic effects of firm-level frictions, and (iii) helps understand the recently documented decline in business dynamism by showing a disappearance of high-growth startups (“gazelles”) since the mid-1980s. (JEL D22, D24, E24, J23, L11, M13)

Common Ownership and Entrepreneurship

We complement the literature on common ownership by presenting two new observations from entrepreneurial startups. First, given the increase in common ownership of startups by VC investors, inclusion of high-value startups in standard common ownership measures may actually increase aggregate measures of common ownership. Second, we suggest that even if public-firm common ownership leads to collusive inefficiency and higher prices in the short-term, it may also create opportunities for entry of innovative high-growth startups. Consistent with this, we document that entrepreneurial activity and common ownership of startups tends to be higher in industries with higher common ownership among public firms.

A hand-up or a hand-out? An argument for concierge services for the development of innovation capacity in startups

This study suggests that a concierge service, provided by governments, can assist startups to gain streamlined access to the services, capabilities and capital required to bring innovation efficiently and cost-effectively to market. It analyses a range of concierge models in five separate jurisdictions to determine best practice. The paper develops a rationale and working definition for a concierge service that will assist public sector managers to help young high-growth SMEs and startups to navigate the increasingly complex innovation ecosystem.

Institutional Change and Early-Stage Start-Up Selection: Evidence from Applicants to Venture Accelerators

Existing research at the nexus of institutional theory and entrepreneurship suggests that lowering institutional barriers to forming, growing, and exiting new firms can affect the types of start-ups that entrepreneurs found in a region. These institutional changes could influence entrepreneurs’ perceptions of the value of partnering with venture accelerators and potentially improve these sponsors’ capacity to select high-growth start-ups to fund and develop. This study evaluates these ideas by developing and testing three hypotheses. First, institutional reforms improve entrepreneurs’ perceived value of venture accelerators for resources that affect new venture development. Second, they reduce the average probability of being selected for new applicants, due to a surge in the number and heterogeneity of new applicants within accelerators’ local ecosystems. Third, institutional reforms increase the quality of selected cohorts for accelerator managers due to increases in the average quality and human capital of new applicants. To evaluate these hypotheses, I analyze data from 13,770 applicants to venture accelerators over multiple application cycles between 2016 and 2018 in 170 countries. I use a differences-in-differences design to estimate the effects of institutional changes on start-up selection after regulatory reforms that reduced the time and procedures to start new firms, obtain credit, and resolve bankruptcy for entrepreneurs. The findings have valuable implications for how governments, especially those in emerging and developing economies, can support high-growth entrepreneurship.

The Short- and Long-run Employment Impact of COVID-19 through the Effects of Real and Financial Shocks on New Firms

We use the latest available empirical evidence on the impact of the COVID-19 shock on the EU economy to predict its effect on firm entry, and in particular on high-growth startups, and on the related short- and long-run impact on employment growth. We find that the COVID-19 shock is expected to reduce firm entry and that its overall impact is very sensitive to financial conditions. A relatively small increase in financial frictions is likely to strongly reduce the entry of high-growth startups, with fewer jobs created in the short run but, more importantly, also slower employment growth in the long run. We then develop a model with heterogeneous startup types and simulate the effects of the COVID-19 shock on the entry and growth of a cohort of new firms to evaluate alternative policies. We find that a loan subsidy that reduces the excess cost of credit for new startups is the most efficient policy in promoting the entry of high-growth startups. The comparison of this subsidy with a wage subsidy that supports current employment shows that, for the same overall costs, the number of jobs created by the loan subsidy in the long term is significantly larger than that created by the wage subsidy in the short term. Our findings imply that, while policies aiming to stimulate current employment are important, in order to ensure also a faster recovery in the future they should be accompanied by measures directed at reducing the cost of credit for new businesses.

Cross-Country Differences in Entrepreneurial Internationalization Tendencies: Evidence from Germany and Pakistan

Previous research has emphasized the importance of entrepreneurial characteristics for international entrepreneurship, hence the application of concepts such as entrepreneurial orientation and global mindset to the study of entrepreneurial internationalization tendencies (EIT). However, literature does not adequately address how EIT differ between countries or manifest in fragile country settings. We address this gap through a quantitative study to investigate EIT in two national settings that largely differ in terms of development, institutional stability, and culture. Through the lens of the institutional theory and the mindset theory, we therefore piloted the study on 112 high-growth startups in Germany and Pakistan. Our findings show, that while entrepreneurs in Germany and Pakistan show comparable levels of innovativeness and proactiveness, they significantly differ in other EIT measures. German entrepreneurs appear to have higher levels of risk-taking, which when explained through the institutional theory lens can be attributed to the higher institutional stability and support as well as social security in Germany. This potentially makes engagement in risky activities, such as business internationalization, more appealing than in Pakistan. However, despite having lower international cognition and international knowledge compared to Germany, Pakistani entrepreneurs appear to exhibit higher degrees of international behavior.

The city and high-tech startups: The spatial organization of Schumpeterian entrepreneurship

Research on Schumpeterian entrepreneurship identifies new high-growth startup companies as key factors in technological innovation and economic growth. While economists have tended to focus on high-growth, high-tech startup firms as the unit of analysis, economic geographers and urbanists have examined the geographic dimensions of entrepreneurship, particularly the rise of entrepreneurial clusters and eco systems. We focus here on a particular type of Schumpeterian entrepreneurship associated with high-tech startup companies, or what we refer to as “tech-startup entrepreneurship.” We contend that the organization of such Schumpeterian entrepreneurship occurs at two spatial scales. At the macro-geographic level, it is highly clustered and concentrated in a relatively small number of global cities or metro areas. At the micro-geographic level, it is highly concentrated in distinct districts or micro-clusters within these leading cities and metro areas. To examine the geographic dimensions of tech-startup entrepreneurship across these spatial scales, we use previously unused data on venture capital-financed startups at the metropolitan and district levels. Our findings support the hypothesis that tech-startup entrepreneurship is organized across two distinct but related spatial scales, which act on entrepreneurial activity through different mechanisms. These findings suggest that local diversity and local specialization can simultaneously potentiate innovation, and that a multi-scalar approach to the geography of entrepreneurship is prudent.