A theoretical analysis of optimal financing strategies for different types of capital-constrained entrepreneurs

Schwienbacher, Armin
(2007) Journal of Business Venturing : entrepreneurship, entrepreneurial finance, innovation and regional development — Vol. 22, n° 6, p. 753-781 (2007)

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  • Schwienbacher, Armin
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Abstract
In this paper, we compare two alternative financing strategies that capital-constrained entrepreneurs can adopt: they can either wait until they raised enough money to complete their project (the more conservative strategy) or use limited resources to achieve some intermediate milestone before contacting large outside investors such as venture capitalists (the more adventurous strategy). We examine how the choice of financing strategy is affected by entrepreneurial types (life-style, serial and pure profit-maximizing entrepreneur). We show that specific entrepreneurial characteristics may ultimately affect the shape of firms as they may pursue different strategies to achieve similar goals. The paper generates a number of empirical predictions on security design, the interplay between angel and venture capital finance, and the professionalization of the venture capital market. (c) 2006 Elsevier Inc. All rights reserved.
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Schwienbacher, A. (2007). A theoretical analysis of optimal financing strategies for different types of capital-constrained entrepreneurs. Journal of Business Venturing : entrepreneurship, entrepreneurial finance, innovation and regional development, 22(6), 753-781. https://doi.org/10.1016/j.jbusvent.2006.07.003 (Original work published 2007)