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Positive effects of portfolio financing strategy for startups

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  • Hyun, Suk
  • Lee, Hyo Seob

Abstract

Based on the startup investment database, we empirically examine the positive effects of a portfolio financing strategy for startups. It is known that some investment banks or venture companies have supplied risky and patient capital to U.S. startups of all financial corporations. They provide differentiated debt financing to startups who already received equity financing and invest more in equity when the startup is younger. Empirical analysis shows that the core risk management is to have a dynamic financing ratio between equity and debt as well as varied equity cost of capital, lending rate and investment horizon based on the age, technology, and financial soundness of a startup. We also find that optimal portfolio financing strategy can help startups raise funds with ease, but also it provides investors with higher expected return on investment, which can facilitate financing for startups and furthermore small and medium enterprises.

Suggested Citation

  • Hyun, Suk & Lee, Hyo Seob, 2022. "Positive effects of portfolio financing strategy for startups," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 623-633.
    • Handle: RePEc:eee:ecanpo:v:74:y:2022:i:c:p:623-633
    DOI: 10.1016/j.eap.2022.03.017
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Startup; Venture debt; Venture capital; Portfolio financing strategy;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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