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The Search for Competent Capital: Financing of High Technology Small Firms in Sweden and USA

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  • Hans Sjögren
  • Marcus Zackrisson

Abstract

The pecking order theory states that firms choose financing in the following order: internal finance-debt-equity. However, most of the research has been conducted on larger (publicly-listed) firms. This article presents a unique empirical material on the financing of high technology small firms (HTSFs) in Linköping, Sweden and Santa Clara County, USA. The data reveals how firms are financed and their preferences for different financial sources. Whilst traditional financial theory and pecking order studies assume only three different financial sources (internal financing-debt-equity), this study also considers who the money comes from: venture capitalists, business angels, banks, corporate venture capital, governments, employees or the firms' founders. The paper shows that the pecking order is different for HTSFs than for larger firms. The HTSFs in the study have a preference for equity financing. The paper also shows that there are differences in financing between HTSFs in Linköping and Silicon Valley and that these differences are not explained by differences in pecking order but rather by differences in availability of finance--in other words, the functioning of the financial systems and the competence provided by the various financiers. HTSFs are primarily searching for appropriate financing.

Suggested Citation

  • Hans Sjögren & Marcus Zackrisson, 2005. "The Search for Competent Capital: Financing of High Technology Small Firms in Sweden and USA," Venture Capital, Taylor & Francis Journals, vol. 7(1), pages 75-97, January.
    • Handle: RePEc:taf:veecee:v:7:y:2005:i:1:p:75-97
    DOI: 10.1080/1369106042000335629
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    Cited by:

    1. Johan Wiklund & Dean A. Shepherd, 2008. "Portfolio Entrepreneurship: Habitual and Novice Founders, New Entry, and Mode of Organizing," Entrepreneurship Theory and Practice, , vol. 32(4), pages 701-725, July.
    2. Mikaela Backman & Tina Wallin, 2018. "Access to banks and external capital acquisition: perceived innovation obstacles," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 61(1), pages 161-187, July.
    3. Backman, Mikaela, 2013. "Banks and New Firm Formation," Working Paper Series in Economics and Institutions of Innovation 301, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    4. Cziráki, Péter, 2007. "A tőkestruktúra empirikus vizsgálata a magyar és az osztrák tőzsdén jegyzett vállalatok körében [An empirical investigation of the capital structure of Austrian and Hungarian listed companies]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 703-715.
    5. Backman , Mikaela & Wallin, Tina, 2017. "Access to financial intermediaries and external capital acquisition," Working Paper Series in Economics and Institutions of Innovation 454, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

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