The Financing of Entrepreneurial Ventures

Entrepreneurship and entrepreneurial activities influence the development and well-being of both economies and societies to a large extent. At the heart of all entrepre-neurial activities are new ventures - vehicles which entrepreneurs use in order to ex-ploit opportunities through the commercialization of newly developed products or services. In addition to the many obstacles entrepreneurs face when creating a new venture and entering new markets, the financing of these entrepreneurial initiatives becomes a large obstacle. In particular, uncertainties regarding market acceptance of the identified opportunity and thus survival and ultimately growth limit the financing options of new ventures notably. Further, the financing decisions made at the begin-ning of the entrepreneurial process have a lasting impact on the development of the new venture once a certain type of financing is acquired. Hence, securing the necessary financing is not only a major challenge for the entrepreneur at the beginning of the entrepreneurial career. The selection of the right amount of financing from the right source also influences the development of the new venture over and beyond the early days of existence. In line with this argumentation and while acknowledging the limited number of fi-nancing options available to new ventures, venture capital is often identified as a via-ble option for firms during in their early stages of development. This form of financing is characterized to be provided by institutional investors that jointly invest financial means, experience, and networks into the firms they consider to be able to generate the desired growth in return. Given the large array of new ventures however, only a few are considered a potential investment, and thereof only a fraction receives the necessary funding. Regarding the latter group of investees however, a venture capital investment has empirically proven to positively influence new venture survival and growth, translating into increased performance of venture capital-backed over non-venture capital-backed firms. Given the fact that venture capital itself is a fascinating field of research but likewise of great importance for the financing of new ventures at the same time, this dissertation develops new empirical insights about the role of ven-ture capital in the context of new ventures that were created in an academic context. Further, crowdfunding as a new means of entrepreneurial finance is analyzed against the background of its signaling value in the investment decision of venture capitalists. The first empirical contribution uses a proprietary dataset of 98 German research-based spin-offs founded between 1997 and 2012 and assesses which firm-specific and system-inherent factors are decisive for the spin-offs’ growth while drawing on the re-source-based view of the firm as theoretical framework. Specifically, this dissertation aims to evaluate whether venture capital-backed research-based spin-offs outperform non venture capital-backed research-based spin-offs and whether a performance differ-ence is explained by venture capitalists’ scouting or coaching capabilities. The empiri-cal findings suggest that a homogeneous educational background of the academic en-trepreneurs is positively associated with the research-based spin-off’s growth. Similar-ly, a training provided by the parent research organization intended to develop entre-preneurial skills and to establish a network to outside professionals as well as the commercialization of a novel technology have a positive impact on a research-based spin-off’s growth. Concerning the involvement of venture capitalists, venture capital-backed research-based spin-offs show a superior employment and revenue growth compared to non-venture capital-backed research-based spin-offs. As a possible cause for this superior performance, the empirical findings support the view that this growth difference can be attributed to venture capitalists’ coaching rather than their scouting capabilities. The second empirical contribution addresses the increasing popularity of crowdfund-ing as a new means to finance new ventures. In particular, this dissertation assesses whether and how crowdfunding campaign-specific signals that affect campaign success influence venture capitalists’ selection decisions in new ventures’ follow-up funding rounds. By doing so, this empirical contribution relies on cross-referencing a proprie-tary dataset of 66,000 crowdfunding campaigns that ran on Kickstarter between 2009 and 2016 with 100,000 investments in the same period from the Crunchbase dataset. Using this approach, 267 new ventures with at least one crowdfunding campaign could be identified. While drawing on signaling theory and the venture capital and micro-finance literature, the empirical findings reveal that a successful crowdfunding cam-paign leads to a higher likelihood to receive follow-up venture capital financing, and that an inverted U-shaped relationship exists between the funding received compared to the funding desired and the probability to receive venture capital funding. Further, the analyses provide statistical evidence that a special endorsement of campaigns by the crowdfunding platform provider as well as social media presence in the form of word-of-mouth volume has a likewise positive impact on the receipt of follow-up ven-ture capital. Interpreting these findings, this dissertation concludes that the results sup-port the view that venture capitalists apparently rely on the decision of the crowd in order to evaluate the potential of the entrepreneurial initiative when selecting new investment opportunities. Over and beyond the signals that a crowdfunding campaign produces and that are ap-parently factored into the investment decision of venture capitalists, this dissertation also elaborates on how the presence of a crowdfunding campaign itself, disregarding all its campaign-relevant aspects, influences the investment decision of venture capital-ists in terms of their decision to form syndicates. For the purpose of this research ques-tion, this dissertation relies again on signaling theory and builds on the syndication literature. The overarching empirical finding is that crowdfunding seems to influence the syndication behavior of venture capitalists. For one thing, the presence of a crowd-funding campaign negatively influences both the likelihood of a syndicated investment as well as the number of syndicate partners. For another, the findings reveal that crowdfunding positively influences the formation of international syndicates. Hence, the results support the assumption that the importance of crowdfunding is also fac-tored into the investment decision of venture capitalists in terms of their decision to syndicate. This dissertation concludes with the major contributions for both theory and practice. In essence, the results derived provide novel insights about growth factors of research-based spin-offs by widening the focus of analysis. This is done by incorporating venture capital into the research scope so as to advance the resource-based view of the firm. Also, this dissertation shows that crowdfunding serves as a catalyst reducing the per-ceived risk in the form of information asymmetries related to new ventures. Thus, this dissertation advances signaling theory and also provides important implications for the microfinance and VC literature.