Funding Emerging Ecosystems

Although prior research argues that location is important for firm performance, we lack an understanding of how resources accumulate in regions and how innovative ecosystems emerge and evolve over time. This paper focuses on the temporal development of an industry in a region and provides a framework for characterizing phase changes in a geographically defined entrepreneurial ecosystem. We add to the literature on entrepreneurial ecosystems by considering emergence as a temporal process and explicating finance as a mechanism that transitions between phases. Emergence is captured by the accumulation of individual entry by entrepreneurs, and punctuated by phase changes as the region accumulates resources and evolves. We use threshold regression to identify inflection points in stages of industry emergence. We then focus on the role of finance, from both public and private sources. Using a dynamic random effects probit model with regime analysis, we demonstrate interrelationships between public and private funding sources that differ over time. Finally, we estimate the relationship between the funding from various sources and firm survival within different phases using a discrete event history analysis. Our results demonstrate that public and private funding sources are complementary but with different impacts on firm survival during different phases. The results have implications for startup firms seeking funding and for policy making trying to encourage industry emergence.