The financing of e-business firms

This paper examines key strategic issues in the financing of e-business firms. E-business firms form part of what is called the "new economy". The paper focuses on seven Irish e-business firms quoted on NASDAQ. The paper argues that the nature of the assets of e-business firms' labour intensive and employee knowledge intensive restricts the use of debt finance. These characteristics also have implications for leakage of knowledge and dissipation of assets. In these circumstances stock options are an appropriate form of remuneration and help create "sticky assets". Because of the nature of assets and risk profile, equity is the most appropriate form of long term finance, but reliance on outside equity creates corporate governance issues and is risky, given control by inside shareholders and the widespread use of options. The paper concludes that managing internal and external finance is one of the key strategic issues facing e-business firms and that this may be most easily achieved with strong linkages/ownership with "old economy" firms.