Towards an evolutionary model of the entrepreneurial financing process: insights from biotechnology startups

Using multiple longitudinal case studies of young biotechnology firms, we study differences in the financing process between high and low performing firms. Findings suggest that initial differences in the specialization of the investors with whom entrepreneurs affiliate early on, affect the ease with which firms attract (specialized) follow-on financing and firm performance. We demonstrate the role of the social context in shaping initial financing outcomes, as entrepreneurs limit their search for financing to one or a few investors with whom they have pre-existing ties. Additionally, our research provides a dynamic view of the financing process. We identify isolating mechanisms, including entrepreneurial learning and homophily and network considerations in investor syndication, which limit entrepreneurs when trying to adopt successful financing strategies implemented by competitors later on. A core contribution is that we theorize on evolutionary processes in the financing process. This new perspective advances our knowledge on dynamics in the financing process and opens multiple avenues for future research.