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Financial Signalling by Innovative Nascent Entrepreneurs

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  • Audretsch, David B
  • Bönte, Werner
  • Mahagaonkar, Prashanth

Abstract

Innovative new ventures fail if they cannot attract resources needed to commercialise new ideas and inventions. Obtaining external resources is a central issue for nascent entrepreneurs - people who are in the process of starting new ventures. We argue in this paper that, a way to deal with this problem is to signal appropriability and feasibility of innovation to the financiers through patenting and prototyping activities, right in the early stages of the venture. We build a new dataset of over 900 nascent entrepreneurs with information on financing from conventional sources as well as business angels and venture capitalists. Our results suggest that patenting and prototyping increase the likelihood of obtaining external finance, especially equity. However, the most important determinant of debt is house ownership. This indicates that new start-ups need to protect their innovations and at the same time, should also prototype the intended product in order to obtain start-up finance. New ventures should therefore strategically use their innovativeness in order to obtain external finance.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7165.

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Date of creation: Feb 2009
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Handle: RePEc:cpr:ceprdp:7165

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Keywords: Entrepreneurship; Finance; Information Asymmetries; Innovation;

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References

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Cited by:
  1. Llussá, Fernanda, 2009. "Financial Development, Gender and Entrepreneurship," MPRA Paper 26228, University Library of Munich, Germany.
  2. Filipe Silva & Carlos Carreira, 2012. "Financial Constraints: Do They Matter to R&D Subsidy Attribution?," GEMF Working Papers 2012-18, GEMF - Faculdade de Economia, Universidade de Coimbra.

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