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Financing the emerging firm

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  • William Gartner
  • Casey Frid
  • John Alexander

Abstract

This study explores the financing choices of 1,214 nascent entrepreneurs in the PSED II dataset. Funding sources are divided into two broad categories: personal and external. We develop a set of hypotheses about the kinds of firm and nascent entrepreneur characteristics that would likely influence which categories of financial resources are used, and the amounts acquired. The majority of financing (57% of all financing) for emerging ventures comes from the personal contributions of its founders, who contributed a median amount of $5,500 per respondent. Firms that more likely to acquire external funding were projected to have higher levels of revenue, were incorporated, and were legally registered. Nascent entrepreneurs with higher levels of education and net worth were significantly more likely to acquire external funding. Results from analyses are presented and discussed. Implications of our findings are provided and suggestions for future research are offered. Copyright Springer Science+Business Media, LLC. 2012

Suggested Citation

  • William Gartner & Casey Frid & John Alexander, 2012. "Financing the emerging firm," Small Business Economics, Springer, vol. 39(3), pages 745-761, October.
    • Handle: RePEc:kap:sbusec:v:39:y:2012:i:3:p:745-761
    DOI: 10.1007/s11187-011-9359-y
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    3. Kantis, Hugo D. & Federico, Juan S. & García, Sabrina Ibarra, 2020. "Entrepreneurship policy and systemic conditions: Evidence-based implications and recommendations for emerging countries," Socio-Economic Planning Sciences, Elsevier, vol. 72(C).
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    6. Casey J. Frid & David M. Wyman & Bentley Coffey, 2016. "Effects of wealth inequality on entrepreneurship," Small Business Economics, Springer, vol. 47(4), pages 895-920, December.
    7. Diana M. Hechavarría & Charles H. Matthews & Paul D. Reynolds, 2016. "Does start-up financing influence start-up speed? Evidence from the panel study of entrepreneurial dynamics," Small Business Economics, Springer, vol. 46(1), pages 137-167, January.
    8. Marcos Segantini & Lori A. Dickes, 2020. "Recurrent funding in entrepreneurship: an analysis of repeated events," Documentos de Investigación 123, Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales.
    9. Nicola Del Sarto & Alberto Di Minin & Giulio Ferrigno & Andrea Piccaluga, 2021. "Born global and well educated: start-up survival through fuzzy set analysis," Small Business Economics, Springer, vol. 56(4), pages 1405-1423, April.
    10. Bjuggren, Per-Olof & Elmoznino Laufer, Michel, 2015. "Startups, Financing and Geography– Findings from a survey," Ratio Working Papers 255, The Ratio Institute.
    11. Morgan, Horatio M. & Sui, Sui & Baum, Matthias, 2018. "Are SMEs with immigrant owners exceptional exporters?," Journal of Business Venturing, Elsevier, vol. 33(3), pages 241-260.
    12. Eresia-Eke Eresia-Eke, 2013. "Can Owner-Manager Characteristics Signal Small Business Loan Default Propensity?," Journal of Economics and Behavioral Studies, AMH International, vol. 5(11), pages 762-776.
    13. Magnus Schückes & Tobias Gutmann, 2021. "Why do startups pursue initial coin offerings (ICOs)? The role of economic drivers and social identity on funding choice," Small Business Economics, Springer, vol. 57(2), pages 1027-1052, August.
    14. Salvatore Di Novo & Giorgio Fazio & Jonathan Sapsed & Josh Siepel, 2022. "Starving the golden goose? Access to finance for innovators in the creative industries," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 46(2), pages 345-386, June.
    15. Shivalik Singh & M H Bala Subrahmanya, 2022. "The financial requirements of tech startups over its lifecycle in Bangalore: An analysis of why and how do they differ?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4123-4141, October.
    16. Diana Hechavarría & Charles Matthews & Paul Reynolds, 2016. "Does start-up financing influence start-up speed? Evidence from the panel study of entrepreneurial dynamics," Small Business Economics, Springer, vol. 46(1), pages 137-167, January.
    17. Marcos Segantini & Lori A. Dickes, 2020. "Creative-entrepreneurs and new venture performance a study of the creative class at the firm-level," Documentos de Investigación 124, Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales.
    18. Fenghua Pan & Bofei Yang, 2019. "Financial development and the geographies of startup cities: evidence from China," Small Business Economics, Springer, vol. 52(3), pages 743-758, March.
    19. Nguyen, Bach, 2021. "Local institutions, external finance and investment decisions of small businesses in Vietnam," Economic Systems, Elsevier, vol. 45(3).
    20. Anosisye M. Kesale, 2017. "Barriers Facing Startup Small and Medium Enterprises (SMEs) In Accessing External Capital in Tanzania," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(3), pages 55-72, March.
    21. Inessa Love, 2020. "Entrepreneurial Access to Finance in the US," Working Papers 202004, University of Hawaii at Manoa, Department of Economics.
    22. Bracht, Felix & Mahieu, Jeroen & Vanhaverbeke, Steven, 2024. "The signaling value of legal form in entrepreneurial debt financing," Journal of Business Venturing, Elsevier, vol. 39(3).
    23. John Stayton & Vincent Mangematin, 2016. "Startup time, innovation and organizational emergence: A study of USA-based international technology ventures," Journal of International Entrepreneurship, Springer, vol. 14(3), pages 373-409, September.
    24. Priyanka Runach & Shubham Garg & Karam Pal Narwal, 2024. "An Empirical Investigation on Financing Choice Descendants of Indian Start-ups," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 31(4), pages 867-888, December.

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    More about this item

    Keywords

    Nascent entrepreneur; Capital structure; Finance; Start-up; PSED; G32; L26; M13;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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