Grünhagen The Evolution of Entrepreneurs` Fund-Raising Intentions

A Multiple Case Study of Financing Processes in New Ventures
2008
ISBN: 978-3-8349-9797-5
Verlag: Betriebswirtschaftlicher Verlag Gabler
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 368 Seiten, eBook

Reihe: Entrepreneurship

Marc Grünhagen examines the evolution of fund-raising struggles in eleven in-depth case studies of seed and early stage ventures. The findings suggest two core recommendations for supporting growth-oriented fund-raising processes: a) to build legitimizing potential and b) to ensure sufficient financial scope for flexible adaptations throughout the financing struggle.

Dr. Marc Grünhagen ist wissenschaftlicher Mitarbeiter von Prof. Dr. Lambert T. Koch am Lehrstuhl für Unternehmensgründung und Wirtschaftsentwicklung an der Universität Wuppertal.

Zielgruppe

Research

Autoren/Hrsg.

Grünhagen, Marc

Weitere Mitwirkende

Koch, Prof. Dr. Lambert T.

Inhaltsverzeichnis

1;Foreword;6
2;Preface;8
3;Contents;9
4;Figures;13
5;Abbreviations;15
6;1. Outline of problem and overview;16
6.1;1. 1. Focus of the study;17
6.2;1. 2. Research issues and objectives;19
6.3;1. 3. Conceptual approach;21
6.4;1. 4. Empirical study and potential contributions;25
6.5;1. 5. Outline;29
7;2. Epistemological concept: entrepreneurs as human agents ;32
7.1;2. 1. New venture failure as an epistemological issue;32
7.2;2. 2. Epistemological implications of human cognition;32
7.2.1;2. 2. 1. Unit of analysis;33
7.2.2;2. 2. 2. Individual perception and cognitive construction of reality;36
7.2.2.1;2. 2. 2. 1. Objective perception and the individualistic alternative;36
7.2.2.2;2. 2. 2. 2. Sense-making of the environment and individual memory;41
7.2.3;2. 2. 3. The fallibility of knowledge and the viability requirement;44
7.3;2. 3. Subjectively rational action and inter-subjective interaction;47
7.3.1;2. 3. 1. Subjectively rational action and its cognitive antecedents;47
7.3.1.1;2. 3. 1. 1. Cognitive antecedents underlying entrepreneurial action;49
7.3.1.2;2. 3. 1. 2. A concept of creative subjectively-rational action;51
7.3.2;2. 3. 2. Social inter-subjectivity and agent interaction;55
7.3.2.1;2. 3. 2. 1. Alignment of reality constructions in interaction processes;56
7.3.2.2;2. 3. 2. 2. Social construction and social acceptance of behaviour;57
8;3. New ventures: definition, financing needs, and legitimacy;62
8.1;3. 1. Definitions and characteristics of new ventures;62
8.1.1;3. 1. 1. The general theme of entrepreneurship;62
8.1.2;3. 1. 2. New ventures versus established firms (definition I) ;64
8.1.2.1;3. 1. 2. 1. Principal challenges in defining new entrepreneurial ventures;64
8.1.2.2;3. 1. 2. 2. Definitional dimensions of new ventures in this study;65
8.1.3;3. 1. 3. Characteristics of new ventures in contrast to established firms;69
8.1.4;3. 1. 4. Infant ventures versus emerging ventures (definition;72
8.2;3. 2. External financing needs of new ventures;77
8.2.1;3. 2. 1. Resource needs of new ventures in general;77
8.2.2;3. 2. 2. Financing needs and their implications for the empirical study;79
8.2.2.1;3. 2. 2. 1. Exogenous determinants of external financing needs;80
8.2.2.2;3. 2. 2. 2. Financing source and capital structure preferences;82
8.2.3;3. 2. 3. Financial resources and the development of new ventures;83
8.2.3.1;3. 2. 3. 1. Implications of financial resource availability;83
8.2.3.2;3. 2. 3. 2. Impacts of financing constraints;84
8.3;3. 3. Legitimacy of new ventures and the acquisition of resources;87
8.3.1;3. 3. 1. Legitimizing challenges in new ventures;90
8.3.1.1;3. 3. 1. 1. Definition and characterization of organizational legitimacy;90
8.3.1.2;3. 3. 1. 2. Different types of legitimacy;92
8.3.1.3;3. 3. 1. 3. The need for new ventures to gain legitimacy;95
8.3.2;3. 3. 2. Options for legitimzing action and potential sources of legitimacy;98
8.3.2.1;3. 3. 2. 1. Characterizing legitimizing action;98
8.3.2.2;3. 3. 2. 2. Principal legitimizing options;100
8.3.2.3;3. 3. 2. 3. Gaining legitimacy by signalling conformance;106
8.3.3;3. 3. 3. Possible differentiations in the challenge to gain legitimacy;110
8.3.4;3. 3. 4. Summary;115
9;4. Financiers’ legitimacy demands and the evolution of entrepreneurs’ fund-raising intentions;116
9.1;4. 1. Understanding financial resource acquisition as a process;117
9.1.1;4. 1. 1. Inquiring into the fund-raising struggle of new ventures;117
9.1.2;4. 1. 2. Possible process-oriented perspectives ;119
9.1.2.1;4. 1. 2. 1. Life-cycle concepts in new venture development and financing;119
9.1.2.2;4. 1. 2. 2. The universal Darwinian principle of BVSR as a meta-concept;121
9.1.3;4. 1. 3. Pattern exploration in the context of invariant restrictions;131
9.2;4. 2. The restrictions and financial selection environment;134
9.2.1;4. 2. 1. Overview of the restrictions environment;134
9.2.2;4. 2. 2. Potential financiers and their legitimacy demands;140
9.2.2.1;4. 2. 2. 1. Sources of finance and financiers’ pre-investment evaluation;141
9.2.2.2;4. 2. 2. 2. Screening and evaluation criteria of external financiers;147
9.2.2.3;4. 2. 2. 3. Stability and inter-subjectivity of financiers’ evaluation criteria;155
9.2.3;4. 2. 3. Pre-investment screening as external selection;159
9.2.3.1;4. 2. 3. 1. External selection pressures on fund-raising processes;159
9.2.3.2;4. 2. 3. 2. External financial selection and internal selection choices;162
9.3;4. 3. Entrepreneurial variation-selection in fund-raising processes;168
9.3.1;4. 3. 1. Creative variation and selective choice in entrepreneurial action;169
9.3.2;4. 3. 2. Trial variation and selective choice of action over time;172
9.4;4. 4. Evolving fund-raising intentions: exploratory theoretical orientations;178
9.4.1;4. 4. 1. General entrepreneurial intentions models as a reference;179
9.4.2;4. 4. 2. Overview: exploratory framework of fund-raising intentions;184
9.4.3;4. 4. 3. Conceptual orientations for empirical exploration;187
9.4.3.1;4. 4. 3. 1. Perceived feasibility of acquiring funding (TO 1a and 1b);189
9.4.3.2;4. 4. 3. 2. Changes in fund-raising intentions (TO 2a-c);197
9.4.3.3;4. 4. 3. 3. Selection feedback from potential financiers (TO 3);207
10;5. Multiple case studies of fund-raising processes in new ventures;212
10.1;5. 1. Case study design and data collection;212
10.1.1;5. 1. 1. Multiple case design ;212
10.1.1.1;5. 1. 1. 1. Exploring fund-raising processes with case studies;212
10.1.1.2;5. 1. 1. 2. Definition of the multiple case design;215
10.1.2;5. 1. 2. Data collection;219
10.1.2.1;5. 1. 2. 1. Case selection framework and procedure;219
10.1.2.2;5. 1. 2. 2. Time frame of data collection and case interviews;223
10.2;5. 2. Case study results: preliminary patterns in fund-raising processes;232
10.2.1;5. 2. 1. Approach to analyzing multiple case evidence;232
10.2.2;5. 2. 2. Case vignettes: description of ventures and their funding attempts;236
10.2.3;5. 2. 3. Entrepreneurs’ sense-making of their financial environment;241
10.2.3.1;5. 2. 3. 1. Funding sources and screening challenges: financial munificence;243
10.2.3.2;5. 2. 3. 2. Venture characteristics and funding flexibility: fund-raising capabilities;258
10.2.3.3;5. 2. 3. 3. Feasibility of fund-raising: external munificence and internal capabilities ( P 1a and P 1b);269
10.2.4;5. 2. 4. Patterns in initial funding-raising attempts over time;280
10.2.4.1;5. 2. 4. 1. Types of changes in intentional fund-raising attempts;281
10.2.4.2;5. 2. 4. 2. Entrepreneurs’ reasoning behind changes in fund-raising plans;288
10.2.4.3;5. 2. 4. 3. Changes in fund-raising intentions and shifts in perceived feasibility/de-sirability ( P 2a and P 2b);290
10.2.4.4;5. 2. 4. 4. Financier feedback and changing fund-raising intentions (P 3);309
10.2.5;5. 2. 5. Selection, evolving fund-raising intentions and venture development;323
11;6. Conclusions and implications for research and practice;330
11.1;6. 1. Summary of findings and potential limitations ;330
11.1.1;6. 1. 1. In conclusion: summarizing the results of the study;330
11.1.2;6. 1. 2. Conceptual and methodical-empirical limitations;334
11.2;6. 2. Implications for research and entrepreneurial practice;338
11.2.1;6. 2. 1. Implications for future research;338
11.2.2;6. 2. 2. Implications for practice;342
12;References;346

Outline of problem and overview.- Epistemological concept: entrepreneurs as human agents.- New ventures: definition, financing needs, and legitimacy.- Financiers’ legitimacy demands and the evolution of entrepreneurs’ fund-raising intentions.- Multiple case studies of fund-raising processes in new ventures.- Conclusions and implications for research and practice.

Leseproben

4. 2. 2. 3. Stability and inter-subjectivity of financiers’ evaluation criteria (S. 140-141)

To begin with it should be noted that - in accordance with chapter two above - it is not holistic evaluation criteria themselves which make investment and credit decisions, but rather financial actors like angel investors or bankers employing evaluation criteria in their decision-making. This has been pointed out, for example, by Tyebjee & Bruno (1984, 1063) for the case of pre-investment screening criteria in the venture capital domain.

The authors use a modelling concept in which evaluation criteria are treated as antecedents to the venture capital manager’s risk-and-return perception of a suggested investment, this perception in turn is assumed to influence final investment decisions. From a conceptual perspective, pre-investment screening criteria would be less suitable as legitimacy restrictions on fund-raising processes, if, say, different venture capitalists employed completely heterogeneous assessment criteria which changed frequently and which were applied by individual financier actors in a totally subjective manner. Therefore, the issue of in how far reasonably coherent and stable evaluation criteria may exist within respective financier communities also needs to be addressed (i.e. in the banking, venture capital, or angel investor domain etc.).

From an institutionalist’s viewpoint, this may in fact be a question of the extent of institutionalization of such criteria. Typically institutionalization is characterized by some kind of sanctioned regulative-normative element and degree of shared understanding which features durability (cf. Hwang & Scott, 2005, 204, Scott, 2001, 48 and 51p., for a characterization of institutions and their functions see also Geue, 1997, 79pp.).

To identify institutionalization, the seminal paper by Zucker (1987, 448) considers elements from the institutional environment (e.g. passing of law or professionalism) as well as possible consequences of institutionalization as possible indicators. Mirrored against such indicators, on the one hand there may be signs of institutionalization in financiers’ evaluation criteria. For example, elements of professionalism in some sub-domains of the financial environment may indicate institutionalization (see below), or isomorphism may be a visible consequence of it.

An example of the latter may be that new ventures will typically have to provide business plans, because they are demanded by formal financiers such as venture capitalists or bankers (cf. above and also Picot et al., 1989 and Castrogiovanni, 1996 arguing that preparing business plans may often follow typified demands of external stakeholders).96 However, on the other hand, institutional contra-indications may also be eminent in the application of pre-investment evaluation criteria. For the above features of stability and inter-subjectivity of evaluation criteria as legitimacy restrictions, both elements pro as well as possible reservations will be addressed.

Temporal stability of evaluation criteria

Basically, the long-term stability of any societal evaluation may be doubted because it will have to rely on fallible socially constructed criteria (cf. Koch, 2003 and Hwang & Scott, 2005, 204 on institutional durability and change). For the case of financiers of entrepreneurial ventures, Brouwer (2002, 102, also cf. Rovenpor, 2004, 54) has noted that investors’ decisions also suffer from fallibility and underlying evaluation criteria may be adjusted in face of failing investment projects. In an analysis of the German venture capital industry after the high technology downturn, interviews with German entrepreneurs found that venture capitalists’ evaluations had become more severe after the downturn as compared to the time of the e-commerce and tech boom (Kollmann & Kuckertz, 2004, 54p., also cf. Rovenpor, 2004).

Über Autor(innen)

Dr. Marc Grünhagen ist wissenschaftlicher Mitarbeiter von Prof. Dr. Lambert T. Koch am Lehrstuhl für Unternehmensgründung und Wirtschaftsentwicklung an der Universität Wuppertal.