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What factors determine the use of venture capital? Evidence from the Irish software sector

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  • Teresa Hogan
  • Elaine Hutson

Abstract

We address the venture capital financing issue from the firm’s perspective. Using survey data for 110 new technology-based firms (NTBFs) in the Irish software sector, we assess the extent to which 5 human capital and 3 other variables determine the firm’s use of venture capital. Education of the lead founder to degree level is the only significant human capital variable, and it is directly related to the likelihood of being venture capital-backed. Venture capital-backed firms have significantly higher start-up costs, and their founders are less averse to loss of control than non-venture capital-backed firms. We conclude that the use of venture capital is dictated largely by the willingness of founders to relinquish control.

Suggested Citation

  • Teresa Hogan & Elaine Hutson, 2004. "What factors determine the use of venture capital? Evidence from the Irish software sector," Centre for Financial Markets Working Papers 10197/1141, Research Repository, University College Dublin.
    • Handle: RePEc:rru:cfmwps:10197/1141
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    Cited by:

    1. Elisa Salvador & Secondo Rolfo, 2011. "Are incubators and science parks effective for research spin-offs? Evidence from Italy," Science and Public Policy, Oxford University Press, vol. 38(3), pages 170-184, April.
    2. Power Jane & Power Bernadette & Ryan Geraldine, 2022. "Determinants of equity financing: a demand-side analysis of Irish indigenous technology-based firms," The Irish Journal of Management, Sciendo, vol. 41(1), pages 52-68, July.
    3. Sylvain Bureau & Elisa Salvador & Jacqueline Fendt, 2012. "Small firms and the growth stage: can entrepreneurship education programmes be supportive?," Post-Print hal-02530098, HAL.
    4. Eduardo Couto & José Bilau, 2011. "Initial Capital Structure Of Portuguese Innovative Firms:The Role Of Nascent Entrepreneurs' Human Capital," Portuguese Journal of Management Studies, ISEG, Universidade de Lisboa, vol. 0(1), pages 29-42.

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