Start-up Firms Research Articles

The impact of entrepreneurs' full-time versus hybrid employment and social connections on new venture survival: a USA–India comparison

Purpose The purpose of this paper is to explore how the entrepreneurs' social connections and types of employment differentially affect the survival of startup firms in the USA and India. Further, the authors analyze the differences during both the early stage and the later stages of new ventures. Design/methodology/approach The authors use data from the Global Entrepreneurship Monitor (GEM) database between 2012 and 2014 and examine the hypothesized effects with logistic regression analyses. Findings The analysis reveals that an entrepreneur's social connections with other entrepreneurs favor the survival of the focal entrepreneur's early-stage business in the USA. However, social connections are more critical for later-stage ventures in India. During the early stage, new ventures of full-time entrepreneurs are more likely to survive in India, whereas those by hybrid entrepreneurs are more likely to survive in the USA. The differences between the importance of full-time and hybrid entrepreneurs across geographies are less discernible during the later stages of new ventures. Originality/value The novelty of this paper is that it demonstrates the significant differences in the way social connections and types of employment (hybrid versus full-time) affect the survival of entrepreneurial firms in the early and later stages. The study also expands the international business literature by shedding new light on country-level differences that affect the survival of new ventures.

Do Venture Capital Investors Learn from Public Markets?

We examine whether venture capital (VC) investors learn information contained in public market stock prices. VCs are less likely to stage finance startups and syndicate with other VCs when stock prices are more informative. An instrumental variable approach suggests that the relation is likely causal. The startup’s initial public offering (IPO) prospect is the plausible information contained in stock prices learned by VCs. The effect of VC learning on staging and syndication is more pronounced when collecting information is more costly and the information learned is more reliable. Evidence from a survey of VC investors confirms that they actively learn information from the public market. VCs’ learning from the public market significantly affects their investments across startup firms. Our paper sheds new light on the real effects of financial markets and suggests that the informational role of security prices is much broader than what we have thought. This paper was accepted by Gustavo Manso, finance.

Performance Analysis of Indie Gaming Projects on Crowdfunding Platforms: Evidence from Kickstarter.com

Research question: The aim of this paper is to examine the financial success of projects in game development industry in comparison with to projects in other industries hosted on crowdfunding platform Kickstarter.com. Motivation: We live in the world of technology where companies arise and disappear on daily basis. The traditional way of financing was expanded with alternative online platforms. Our goal was to conduct an empirical analysis of one crowdfunding platform (Kickstarter.com) in order to understand if technology projects are doing better than other projects. If they do, what are the key factors for their success? Idea: Our goal was to better understand how crowdfunding model supports small indie development projects and projects in other industries. Data: We used the data of 148.510 companies applied for crowdfunding financing between 2015 and 2020, published on the web crawler platform Web Robots. Tools: All statistical analyses were performed using statistical software IBM® SPSS® Statistics v.21. The data were presented using standard methods of non-parametric descriptive statistics (absolute and relative frequencies for medians and interquartile ranges for numeric outcomes). For testing of statistical significance of difference between two groups we used the Pearson´s Chi-Quadrat test and Mann-Whitney test, where appropriate. The effect size for the 2x2 analyses was estimated using Odds ratios. Findings: The paper analyses the financial success of gaming and not gaming projects and tries to identify key factors for successful funding. We found a statistically significant higher prevalence of successful financing in game development projects, with 2.3 times higher odds of successful funding compared to not-gaming industry. Our analysis of quantitative indicators such as the number of backers, goal amount, pledged amount, pledged amount per backer and pledged to goal ratio also showed that projects in game development statistically outperformed projects in other categories. Promising game projects were supported by three times more backers on average and attained almost as double funds as other projects, while still sporting more modest pledged amounts per backer. These findings support the notion of crowdfunding being a viable modality of financing independent game development in emerging economies. Contribution: This paper expands the existing research related to the crowdfunding platforms and indie development companies and formulates key factors for successful financing for technology startup firms.

Would Digitalization Project Impact Corporate Resilience? An Evaluation of the Nigeria Deposit Money Bank (DMB)

This paper examined whether digitalization of key functional units, product and service offerings by Nigeria deposit money banks (DMB) could stymie the steaming competition from Fintech startup firms. Four key bank performance indexes (KPI): - customer deposit, loan & advances to customer, asset under management and operational expense were isolated. Eight Nigeria deposit money banks (DMB) were randomly selected and designated either as, “highly or “less digitalized”. The four selected bank key performance index (KPI), were tested, using rate (%) of change on a pair of a “highly and a less digitalized” bank. The highly digitalized bank proxied Fintech startup firms while the less digitalized are the normal banking firms. The results produced significant difference in favour of the less digitalized normal banks. In all the cases statistically analyzed, the less digitalized banks out performed, in all four key bank KPI, the highly digitalized Fintech startup firms. Our findings denied the much-orchestrated Fintech startup firms outperforming ordinary banks in the financial services market. Conclusively - excessive technological deployment adds tittle or nothing to banks’ performance: revenue generations, competitive stamina and even resilience. Agbaje of Guaranty trust bank (G. T Bank) was right; “…. dominating the market is beyond just acquiring the best of technology.” Fintech startup firms are no threat to the brick-and-mortar model. Key w ords: Fintech, digitalization, customer deposits, asset, loan & advances, ecosystem. DOI: 10.7176/EJBM/13-24-06 Publication date: December 31 st 2021

Practical Applications of The Role of Contracts in Venture Capital Returns

In <b>The Role of Contracts in Venture Capital Returns</b>, published in the Fall 2021 issue of <b><i>The Journal of Alternative Investments</i></b>, <b>Sarina Liu</b> of <b>Wells Fargo</b> creates a novel dataset to empirically test the hypothesis that traditional methods overestimate the post-money value of startup firms. Data about contract terms display four general convertible preferred stock types that are often provided to venture capitalists (VCs). After combining the data on contract terms with two additional datasets, the author analyzes cash flows to the VCs, revealing several interesting statistics regarding early- and late-stage investors in small and large acquisitions for each of the four types of convertible preferred stocks. While possible outcomes include failures, acquisitions, or initial public offerings (IPOs), most involve small acquisitions. Importantly, the traditional method for estimating the post-money value is inaccurate because the assumption of using common stock does not capture the significant added value of preferred stock.

Does social capital provide marketing benefits for startup business? An emerging economy perspective

PurposeThis study explores the relevance of social capital resources generated through networks to address the marketing challenges of startups. It looks into the marketing issues faced by startup firms in emerging markets and examines how they leverage their social capital to reach out to their customers and other stakeholders for marketing their products and services.Design/methodology/approachThe case study analysis using the abduction method, semi-structured interview and content analysis were used for answering the research questions.FindingsThis study finds the importance of developing social capital by startups for marketing activities. Social capital also acts as a strategic advantage that the competitors cannot easily emulate. Findings show that the development of social capital happens through the network of startup entrepreneurs and social connections involving customers, dealers and suppliers, among others.Originality/valueThis study is a novel attempt to emphasize the potential of social capital for marketing activities in a startup firm. This study expands the literature on social capital with a marketing perspective in an emerging economy context. The academic and managerial implications have also been highlighted in the study.

Give Me Your Tired, Your Poor, Your High-Skilled Labor: H-1B Lottery Outcomes and Entrepreneurial Success

We study how access to high-skill labor affects the outcomes of start-up firms. We obtain exogenous variation in firms’ ability to access skilled labor by using win rates in H-1B visa lotteries. Relative to other firms that also applied for H-1B visas, firms with higher lottery win rates are more likely to receive additional venture capital funding and to have a successful exit via an IPO or acquisition. H-1B visa lottery winners also subsequently receive more patents and patent citations. Overall, our results suggest that access to high-skill labor is a critical determinant of success for start-up firms. This paper was accepted by Gustavo Manso, finance.

Practical Applications of The Role of Contracts in Venture Capital Returns

In The Role of Contracts in Venture Capital Returns, published in the Fall 2021 issue of The Journal of Alternative Investments, Sarina Liu of Wells Fargo creates a novel dataset to empirically test the hypothesis that traditional methods overestimate the post-money value of startup firms. Data about contract terms display four general convertible preferred stock types that are often provided to venture capitalists (VCs). After combining the data on contract terms with two additional datasets, the author analyzes cash flows to the VCs, revealing several interesting statistics regarding early- and late-stage investors in small and large acquisitions for each of the four types of convertible preferred stocks. While possible outcomes include failures, acquisitions, or initial public offerings (IPOs), most involve small acquisitions. Importantly, the traditional method for estimating the post-money value is inaccurate because the assumption of using common stock does not capture the significant added value of preferred stock.

Packages of management control systems, entrepreneurial orientation and performance in Brazilian startups

PurposeThis study aims to understand the relationship between the elements of a startup firms’ management control system (MCS) package, its entrepreneurial orientation (EO) and firm performance.Design/methodology/approachThe authors collected survey data from a sample of 100 Brazilian startups who had exited technology-based parks and incubators. The authors used two data analysis techniques, namely, partial least squares structural equation modeling (PLS-SEM) and fuzzy-set qualitative comparative analysis (fsQCA).FindingsThe findings show that cultural and planning controls were the only two MCS elements that were included in all high-performing startup firms’ MCS packages. The authors also found that EO has a positive influence on firm performance through the MCS package.Research limitations/implicationsThe mixed-method approach allowed for a holistic view of the analyzed phenomenon. PLS-SEM analysis was applied to the symmetric relationships between the proposed relationships while fsQCA was used to analyze the asymmetric combinations between EO dimensions and MCS package elements, which promoted high firm performance.Practical implicationsThe authors show how different combinations of MCS elements form a package, mediating EO, which can enable high performance.Originality/valueUsing fsQCA and PLS-SEM, the authors were able to better understand the important role that MCS package adoption has on a startups’ performance and provide new evidence regarding the interface between MCS and EO. This extends the understanding of the importance that cultural and planning controls have in an MCS package to support startup performance.

Value drivers of startup valuation from venture capital equity-based investing: A global analysis with a focus on technological factors

Because of the recent surge in the number of unicorns and their role in spurring entrepreneurship and social impacts, venture capitalists, entrepreneurs, and regulators are concerned about how startup firms are valued. This is due to a lack of financial and historical information about startups as well as the need to understand their disruptive technological aspects. The length of observations is 2008–2018. The study uses the average value of variables for cross-sectional estimations. Our study investigates whether the types of recent technologies adopted by startups could serve as key factors to be used in startup valuations. Using a sample of 4903 startup in 13 subregions, we find that financial information (revenues) and nonfinancial information (social media) as well as sectoral and technological differences influence startup equity valuation. Technologies that involve big data, clean tech, mobile and augmented reality are prominent equity valuation premiums, regardless of the subsectors in which the startups originate. In addition, we find that e-commerce and mobile and big data are effective technologies for startup firms to employ for accumulating short-term capital.

Innovation by start-up firms: The role of the board of directors for knowledge spillovers

This paper investigates whether board directors interlocked with or employed by innovative firms affect start-up firms’ propensity to be innovators themselves. Drawing upon a sample of more than 50,000 Swedish start-up firms, we find that board connections to incumbent innovators have a causal impact on the new firms’ probability to apply for patents. The results are robust when controlling for industry, geography, firm age, as well as spillovers through worker and managerial mobility, external knowledge sourcing through patent disclosure, access to venture capital and board attributes.

The rise of urban tech: how innovations for cities come from cities

ABSTRACT This research investigates the economic geography of urban technology, or ‘urban tech’, start-up enterprises. Comprised of ride-hailing, co-living, co-working, smart cities and other urban-oriented activities, urban tech is a suite of innovations that enable and are premised upon growing urbanization. We investigate where urban tech comes from by analysing Pitchbook, a database of venture capital deals, to chart the evolution and geography of urban tech start-up firms. We show urban tech firms to be highly clustered in two kinds of places: specialized tech hubs such as the San Francisco Bay Area and large cities such as New York, London and Beijing. Furthermore, we find that urban tech geography is associated with two classes of factors: the scale of existing tech activity, and the size and extent of metro areas. Together these findings suggest that the geography of urban tech is shaped by the innovative capabilities of urban areas and, to a lesser extent, by urbanization itself. Urban tech investment is less common in areas associated with ‘Industry 4.0’ industrial policy.

The timing of diversification and startup firms’ survival: a resource-based perspective

ABSTRACT The study investigates the determinants of first-time diversification activities undertaken by about 3,000 startups in the United States. Drawing on the resource-based view, we examine the impact of resource endowment on the timing of diversification. We further examine the effect of the timing of diversification on the likelihood of firm survival and then test for persistence. The analysis offers three main insights. First, resources play a crucial role in early diversification. Second, early diversification reduces the hazard of exit from the market. Third, the positive impact of early diversification on survival attenuates after five to six years. Our study contributes to the literature on the resource-based view and firm survival. The findings have important implications for entrepreneurs, policymakers, and entrepreneurship scholars.

Entrepreneurial Alertness and Performance of Start-Up Firms in Nigerian Publishing Industry

There have been scholarly arguments to justify why some entrepreneurs are able to discover and exploit new market opportunities that make them different from others. This study explored the effect of entrepreneurial alertness on the performance of start-up firms in Nigerian publishing industry. The study measured the effects of three entrepreneurial alertness constructs; scanning and search, association and connection, evaluation and judgement on firm performance. A cross-sectional survey was adopted for the study and questionnaire was utilized for the collection of data from 125 employees of four start-ups publishing firms in Nigeria; Kachifo Limited, Cassava Republic Press, Masobe Books and Narrative Landscape Press that constituted the study population. The data collected were analysed using descriptive statistics (means and standard deviations) and inferential statistics (correlation and multiple regression) with the aid of the Statistical Package for Social Sciences (SPSS 23 version) software. The study established a positive correlation between entrepreneurial alertness dimensions and firm performance. Results of tested hypotheses indicated that alertness scanning and search and alertness evaluation and judgement both have positive and significant effect on firm performance. The study however found that there is no significant effect of association and connection on firm performance. The study suggested that start-up firms should be able to discover feasible opportunities by improving their scanning behaviour and the capability to constantly appraise the environment to adequately utilize available information.

PUSH-PULL THEORY IN BLACK AND WHITE: EXAMINING RACIAL DIFFERENCES IN FIRM STARTUPS BEFORE AND AFTER THE GREAT RECESSION

Although Blacks in the United States suffered disproportionately high unemployment, housing and wealth losses during the Great Recession, little is known about the recession’s impact on Black entrepreneurship. This study uses data from the Panel Study of Income Dynamics (PSID) to estimate the difference in probability of starting a business before and after the recession for Black and White households. While the likelihood of starting a business declined for Whites after the Great Recession there were no statistically significant changes in the rate of firm startups among Blacks. Evidence supports the prosperity pull hypothesis for White but not Black entrepreneurs.

Data management efficiency: major opportunities for shared value innovation

PurposeThis paper aims to underscore major opportunities for shared value innovation based on data management efficiency, which has often been overlooked so far. By integrating prior research about digital transformation, shared value creation, entrepreneurial marketing and the innovation-based view of firm performance, it addresses a major gap in the literature.Design/methodology/approachThe innovation-based arguments illustrate how efficient data management may lead to different types of innovation, which provide opportunities for growth and efficiency gains after the coronavirus pandemic.FindingsMany companies’ digitalization programs have concentrated on strengthening the efficiency of current business processes. Thus, these initiatives have contributed to the efficiency of traditional analog activities by using data and smart algorithms. In contrast, the efficiency of the underlying data management was largely neglected, but the COVID-19 pandemic has highlighted its importance. To overcome the limited emphasis on sustainability and efficiency in the digital context, this paper focuses on data management efficiency. After detailing this concept, it is linked to the growing literature about creating shared value, and a process segmentation for implementing shared value innovations in the field of digital efficiency is developed.Originality/valueThe paper extends research into digital transformation by emphasizing that the distinction of effectiveness and efficiency is as relevant in the digital context as in the traditional analog environment. It further provides new insights into creating shared value because it increases the awareness of researchers and managers to consider data management efficiency as a basis for shared value innovation with positive effects on the triple bottom line. The paper also contributes to entrepreneurial marketing research because data management efficiency provides significant opportunities for entrepreneurs, startup firms and innovators in established organizations to develop entirely new markets based on new services, solutions and business models. Finally, the paper deepens the understanding of the innovation-based view of firm performance.

What drives the growth of start-up firms? A tool for mapping the state-of-the-art of the empirical literature

PurposeThis study aims to enrich the current theoretical debate on the growth of start-up firms by extensively investigating the ongoing empirical studies in this research stream. Moreover, this study identifies drivers whose support roles are confirmed in the literature and recommends further research opportunities.Design/methodology/approachIn this study, we analysed the results of 316 empirical studies on start-up firms and growth and also identified and categorised 66 growth drivers. We presented these drivers in three-dimensional charts: 1) the frequency of using each driver in the 316 studies, 2) the consistency of each driver as measured by the number of studies supporting its statistical significance and 3) the net effect (positive or negative) of each driver on growth.FindingsOur analysis compares extant studies on growth drivers and shows some under-explored growth factors of start-up firms.Practical implicationsBoth start-up managers and policymakers can benefit from this study. This study provided managers with a fine-grained tool on the main growth drivers and can guide policymakers in supporting policies for start-up firms.Originality/valueThis study provides a rich, fine-grained and coherent picture of several potential growth drivers of start-up firms. Moreover, we extended our analysis to various potential drivers more than previous studies on this topic, thereby providing fruitful insights into the critical growth factors for start-up firms.

Urban geography 1: ‘Big tech’ and the reshaping of urban space

This report draws on the burgeoning geography literature on ‘big tech’ and how scholars have responded to its spatial impacts. First, it traces the revival in locational geographies and the role of global platform firms in shaping urban market geographies; second, it traces work on the urban governance and regulatory challenges posed by different types of capital; and technology entrepreneurship and start-up firms; third, it identifies work that has traced the impact of apps and platforms on the conduct of urban life, from delivery drivers to taxis to dating to real estate rental.

The effect of Relationship Network and Business Model Innovation on Start-up Performance in Vietnam

Aims: It aims to build and verify the theoretical model among the network of relationships, business model innovation and start-up performance of start-up companies.&#x0D; Methodology: The study employed qualitative and quantitative methods of research in 550 start-up firms in Vietnam. The qualitative method is utilised to adjust and complement the scale (interviews with experts). Utilising the PLS-SEM analysis method with the SmartPLS support tool, the quantitative method is used to assess reliability, permissibility, model testing, and research hypotheses.&#x0D; Results: Start-up firms' relationship network (with government officials, social contacts, and business partners) has a beneficial effect on their performance. Relations with government officials benefit value creation, value proposition, and value capture innovation. Social relationships have a positive impact on value proposition innovation. Relationships with business partners contribute to the creation of value and the innovation of new products and services. Business model innovation can have a sizable impact on the performance of a start-up. Finally, environmental dynamism has no regulatory effect on the innovation of business models or the performance of start-up firms.&#x0D; Conclusion: This study has filled theoretical gaps by confirming the results of prior studies that had questioned the connection between the network of relationships, business model innovation, and start-up performance. The findings propose management solutions for start-ups' owners and senior managers, policymakers, and official government entities.

The impact of policy uncertainty on the M&amp;A exit of startup firms

The impact of policy uncertainty on the M&amp;A exit of startup firms