General Business Resource Materials
Entrepreneurship Law Editorial Team
Ralph Alterowitz & John Zonderman, FINANCING YOUR NEW OR GROWING BUSINESS : HOW TO FIND AND GET CAPITAL FOR YOUR VENTURE (2002).
Abstract (from publisher): This book is a comprehensive look at dozens of options for financing a new or growing company. It discusses how to obtain financing through each route and the benefits of each method.
Ralph Alterowitz & John Zonderman, FINANCING YOUR BUSINESS MADE EASY (2007).
Abstract (from publisher): Financing Your Business Made Easy offers myriad ideas to get financing. The authors discuss the benefits and pitfalls of borrowing from family and friends, with tips on how to keep business relationships separate from personal ones. Dozens of government loan sources are explained in detail. Drawing on their insider knowledge of venture capital firms and angel investors, the authors reveal how to maximize your chances of success. Plus, they provide innovative financing ideas, such as borrowing from suppliers and customers, taking advantage of credit cards, and raising money from employees.
David B. Audretsch & Albert N. Link, Valuing an Entrepreneurial Enterprise (2012).
(adapted from publisher):
Entrepreneurs generally lack the marketing capabilities necessary to bring their new product to market. To engage the resources required to do this, they must somehow place a value on the enterprise. However, all of the methods of valuation currently available are based on the use of historical or current revenues, and therefore are not applicable to an entrepreneurial enterprise with a first-time product. In Valuing an Entrepreneurial Enterprise, Audretsch and Link present a valuation method uniquely tailored to emerging technology-based ventures that have no revenue history to lean on. Unlike many traditional methods, theirs does not take into account the track record of companies and products similar to that being valuated. Instead, it draws on economic theory to formulate a solution to the problem. The book develops conceptual ground, including trends in entrepreneurship, models of innovation, and the economics of standards and entrepreneurship policy. The authors review the traditional valuation methods and illustrate them numerically with case studies to show how the traditional approach produces an incorrect valuation. The core of the book presents the new methodology and demonstrates how it avoids the pitfalls of past approaches. The authors also show how public policy on technology and infrastructure changes valuations of start-up firms in areas such as stem-cell products and renewable fuels projects.
Ian R. Campbell & Howard E. Johnson, THE VALUATION OF BUSINESS INTERESTS (2001).
Abstract (from product description at Amazon.com):
A comprehensive resource for valuation practitioners, financial advisors, financial officers and others involved in business valuations, acquisitions and divestitures.
William H. Draper, The Startup Game: Inside the Partnership between Venture Capitalists and Entrepreneurs (2011).
Abstract (adapted from Amazon.com):
Entrepreneurs drive the future, and the last several decades have been a thrilling ride of astounding, far-reaching innovation. Behind this transformative progress are also the venture capitalists—who are at once the investors, coaches and allies of the entrepreneurs. William H. Draper III knows this story first-hand, because as a venture capitalist, he helped write it. For more than 40 years, Bill Draper has worked with top entrepreneurs in fabled Silicon Valley, where today’s vision is made into tomorrow’s reality.
From a venture capitalist who saw the potential of Skype, Apollo Computer, Hotmail, OpenTable, and many other companies, comes firsthand stories of success. In these pages, Draper explores how to evaluate innovative ideas and the entrepreneurs behind those ideas, and he shares lessons from Yahoo, Zappos, Baidu, Tesla Motors, Activision, Measurex, and more. Also, in revealing his on-the-ground account of how Deng Xiaoping brought China roaring into the modern world and how Manmohan Singh unlocked the creative genius of Indian entrepreneurs, Draper stresses the essential value of farsighted political leadership in creating opportunity.
David Frodsham & Heinrich Liechtenstein, Getting Between the Sheets: The Four Things Every Entrepreneur Should Know about Finance (2011).
Abstract (adapted from Amazon.com):
For many entrepreneurs there is a mystique about finance -starting, growing and selling new ventures is tough enough. Yet with some focused financial knowledge you can run your company with less cash, grow it more quickly and make more money when it is sold. This book makes the dry world of finance easy to understand and relevant to entrepreneurs.
Daniel Hjorth, ENTREPRENEURSHIP AND ORGANIZATION: POLITICS, PASSION, AND CREATION (2010).
Product Description (from Amazon): Working from a unique standpoint and challenging the orthodoxy on entrepreneurship this book explores the possibilities of entrepreneurship in organizations and entrepreneurship in organization creation whilst re-anchoring entrepreneurship within a broader disciplinary approach.
Bruce A. Kirchhoff, ENTREPRENEURSHIP AND DYNAMIC CAPITALISM: THE ECONOMICS OF BUSINESS FIRM FORMATION AND GROWTH (1994).
Abstract (from publisher): Kirchhoff blends economics, business, and government policy to demonstrate that entrepreneurship's role in business formation and growth energizes and maintains the viability of capitalism. Entrepreneurs convert new ideas into marketable products and services and use these to grab market shares from older, established firms. This process not only produces economic growth, but also redistributes resources so as to assure equitable distribution within society. Acknowledging that this perception is descriptive but lacks predictive power, Kirchhoff offers a typology to assist in predictive theory building and to guide government policy development.
J. Chris Leach & Ronald W. Melicher, Entrepreneurial Finance (4th ed. 2012).
(adapted from publisher):
This accessible, reader-friendly textbook closely follows a “life cycle of the firm” approach as it introduces the theories, knowledge, and financial tools an entrepreneur needs to start, build, and eventually harvest a successful venture. This edition focuses on sound financial management practices, showing students how and where to obtain the financial capital necessary to run and grow a venture. This edition explores the most important financial issues that entrepreneurs face, particularly the stages of financing, business cash flow models, and strategic positioning of the early-stage company. A new capstone case and updated mini-cases, as well as engaging entrepreneurial ventures lifted from the latest headlines keep readers involved and learning as they examine concepts such as venture capital funds, institutional investors, and strategic alliances. This edition also provides readers with a thorough understanding of the role of business angels, licensing agreements, and exit strategies.
Alice H. Magos, SMALL BUSINESS FINANCING: HOW AND WHERE TO GET IT (2002).
Abstract (from publisher): Securing adequate funding for a business venture can be one of the most difficult obstacles faced by entrepreneurs. This resource instructs readers on the best ways to raise money for growing or starting a small business by discussing each source of public and private debt and equity capital, from bootstrapping and IPOs to commercial loans and SBA-guaranteed programs. Covered are methods for determining how much capital is needed, planning successful applications and presentations, and choosing an appropriate source and type of financing. Sample forms are integrated into the text to facilitate learning the details and data-gathering skills needed for the financing process.
Deborah M. Markley & Katharine McKee, BUSINESS FINANCE AS A TOOL FOR DEVELOPMENT(1992).
Abstract: Reviews finance strategies for starting businesses using a community economic development approach.
Marc H. Meyer & Frederick G. Crane, Entrepreneurship: An Innovator’s guide to Startups and Corporate Ventures (2011).
Abstract (adapted from Amazon.com):
This text helps student entrepreneurs succeed in the modern arena, in which new technology-intensive products and services are the engines of venture creation and economic growth. It shows students how to understand their industry dynamics and customer needs, test their venture idea in the market and with target customers, and write a successful business plan for a startup or a corporate venture. The authors use clear frameworks and systematic methods that are based on the decades of experience, not just in the classroom, but from starting, advising, and helping to manage successful ventures.
David Nour, THE ENTREPRENEUR'S GUIDE TO RAISING CAPITAL (2009).
Abstract (from product description at Amazon.com):
This book provides pragmatic advice from entrepreneurs who have raised money from friends, family, angel investors, and banks, as well as institutional investors such as venture capitalists and private equity firms. It details the process from start to finish while spotlighting the danger spots and ways to avoid them. It will be especially useful to those who are uncomfortable making important financial decisions, and to those who are confused by all the conflicting opinions offered by advisors—both well meaning and otherwise. By showing readers the financing ropes, the author removes a major source of stress for budding entrepreneurs and moves them closer to their dream come true: a successful business.
Judith A.Parzen & Michael H. Kieschnick, CREDIT WHERE IT'S DUE: DEVELOPMENT BANKING FOR COMMUNITIES(1992).
Abstract (from publisher): Analyzing the field of community development banking, Parzen and Kieschnick explain how financial institutions can serve the economic development needs of communities in which they operate without sacrificing prudent banking practices. Relying on firsthand knowledge, the authors show why development banks are worthy of the attention of community development activists, financial institutions that want to improve their performance, and policymakers trying to fix the financial system. The authors describe the successes of a number of community development banks, such as South Shore Bank in Chicago, Northern Community Investment Corporation in Vermont, and Self Help Credit Union in North Carolina. Parzen and Kieschnick explore the factors that contribute to or limit development bank effectiveness, and they focus on how banks come to terms with conflicts between serving their markets and surviving. They offer a plan for achieving the full economic development potential of development banking, including specific steps for development bankers, mainstream financial institution, government agencies, and foundations.
Stephen Pollan, HOW TO BORROW MONEY (1983).
Shannon P. Pratt, BUSINESS VALUATION DISCOUNTS AND PREMIUMS (2009).
Abstract (from product description at Amazon.com):
There is often more money in dispute in determining the discounts and premiums in a business valuation than in arriving at the pre-discount value itself. Discounts and premiums affect not only the value of the company, but also play a crucial role in determining the risk involved, control issues, marketability, and contingent liability, to name a few.
Shannon P. Pratt & Alina V. Niculita, VALUING A BUSINESS: THE ANALYSIS AND APPRAISAL OF CLOSELY HELD COMPANIES (5th ed. 2007).
Abstract (from product description at Amazon.com):
This edition is updated with new legal, financial, and compliance material, the Fifth Edition of Valuing a Business presents detailed answers tomany valuation questions ranging from executive compensation and lost profits analysis to ESOP issues and valuation discounts.
Steven Rogers, ENTREPRENEURIAL FINANCE: FINANCE AND BUSINESS STRATEGIES FOR THE SERIOUS ENTREPRENEUR (2009).
Abstract (from product description at Amazon.com):
This book is a practical road map offering methods for keeping firm financial control of the enterprise while avoiding common financial barriers. It covers, among other things: the dual objectives of a business plan and how to ensure that both are fulfilled; differences between debt and equity financing and how and why to use each; real-world methods for structuring a deal to benefit both the financier and the entrepreneur; valuation techniques for understanding what your business is truly worth; and essential resources for finding the detailed information you need.
Neil Senturia, I'm There for You, Baby: the Entrepreneur's Guide to the Galaxy (2011).
Abstract (from Amazon.com):
Success, failure, joy, pain, and rejection. Neil Senturia shares the ups and downs of his entrepreneurial life and how the lessons learned along his journey can be applied to all of our lives. The book reads like Neil talks (with the occasional four letter word!) so be prepared for a humorous and insightful read. Two hundred and twenty three of his Baby Rules are included here.
Janet Kiholm Smith et al., Entrepreneurial Finance: Strategy, Valuation, and Deal Structure (2011).
Abstract (adapted from Amazon.com):
applies the theory and methods of finance and economics to the rapidly evolving field of entrepreneurial finance. This approach reveals how entrepreneurs, venture capitalists, and outside investors can rely on academic foundations as a framework to guide decision making.
This book prepares readers for a wide variety of situations and problems that stakeholders might confront in an entrepreneurial venture. The authors specifically address the influences of risk and uncertainty on new venture success, devoting substantial attention to methods of financial modeling and contract design. Finally, the authors provide a comprehensive survey of approaches to new venture valuation, with an emphasis on applications.
Entrepreneurial Finance is most effectively used in conjunction with a companion website,
. On this site, Venture.Sim simulation software, spreadsheets, templates, simulation applications, interactive cases, and tutorials will be available for download. For those teaching from the book, the authors also provide an invaluable suite of instructor's resources.
Jeffry A. Timmons, et al., HOW TO RAISE CAPITAL: TECHNIQUES AND STRATEGIES FOR FINANCING AND VALUING YOUR SMALL BUSINESS (2004).
Abstract (from publisher): This is the entrepreneur's guide to money - where to find what you need to build your business, how to value the business you build, and more America is the land of the entrepreneur. We lead the industrialized world in people who pursue their own businesses, and build their own dreams. Yet for too many this dream becomes a nightmare, a never-ending cycle of scrambling for financial resources as customers and growth fly out the door to their competitors. "How to Raise Capital" provides a battle-tested, step-by-step plan you can follow to create the financial foundations necessary for long-term success. Drawing on the authors' unmatched experience in the start-up trenches, along with literally dozens of high-profile, real-life examples of entrepreneurial success and failure, this straight-talking book will show you how to: locate and negotiate with the funding resources that are right for you, from SBA lenders to angel investors; and, anticipate and overcome the four key mistakes that stifle small business growth.
Rassoul Yazdipour, Advances in Entrepreneurial Finance: with Applications from Behavioral Finance and Economics (2011).
Abstract (adapted from Amazon.com):
Advances in Entrepreneurial Finance brings together contributions from researchers from the fields of entrepreneurship, behavioral finance, psychology, and neuroscience to shed new light on the dynamics of decision making and risk taking by entrepreneurs and venture capitalists (VCs). Every new venture requires access to capital at competitive interest rates, and much has been written on general entrepreneurship by management scholars and financial contracting by financial economists using traditional finance theory with all its highly restrictive assumptions regarding decision makers’ cognitive capabilities and behavior. But recent developments in behavioral finance can now be applied to understand how entrepreneurs and VCs perceive risk and uncertainty and how they decide and act accordingly. Showcasing the latest research, this volume demonstrates that findings from the behavioral and neuroscience arenas can and do explain decision making by entrepreneurs and venture investors in the real world. Consequently, such findings have practical implications not only for entrepreneurs, venture capitalists, and their advisors, but also all government agencies and NGOs that want to support product and technological innovation, capital formation, job creation, and economic development.
Andrew L. Zacharakis, Building Your Pro Forma Financial Statements in The Portable MBA in Entrepreneurship, 141-166 (3rd ed., William D. Bygrave & Andrew L. Zacharakis, eds., 2004.)
Abstract: This book covers all angles of setting up your own business, from spotting market opportunities to protecting intellectual property.
FINANCING ECONOMIC DEVELOPMENT IN THE 21ST CENTURY (Sammis B. White, Robert D. Bingham & Edward W. Hill eds., 2003).
Abstract (from product description at Amazon.com): This book offers a comprehensive survey of the major mechanisms for financing economic development today. It explores the details of all the standard developmental tools, such as Tax Incremental Finance districts, angel and venture capital, and tax abatements, as well as newer tools that have proven effective, including micro-enterprise lending, stadium financing, brownfield financing, and revolving loan funds. Tools for rural development finance are also covered, and in addition to describing the various programs and providing examples of how they work, the book also evaluates their relative effectiveness.
Gordon K. Adomdza & Thomas B. Astebro, The Effect of Entrepreneurial Cognition on Investments for Commercialization Success (2012), available at http://ssrn.com/abstract=2061022.
Entrepreneurs’ cognitions may affect performance directly but also indirectly through their effects on own as well as others’ investment. The authors study the effects of planning fallacy, optimism, and overconfidence on commercialization investments and success. Optimism directly increased commercialization success. The effect of planning fallacy on commercialization success was mediated by the entrepreneur’s own as well as others’ investments. Strong ties were more likely to supply funds with increased planning fallacy and optimism, while weak ties were less likely to supply funds with increased planning fallacy and optimism. Overconfidence was not of importance in this study. The results show the need to study the effects of entrepreneurs’ cognitions on different stakeholders’ perceptions of the entrepreneur in the entrepreneurial process.
Amitrajeet A. Batabyal, Project Financing, Entrepreneurial Activity, and Investment in the Presence of Asymmetric Information (RIT Economics Department Working Paper No. 11-07, 2011), available at http://ssrn.com/abstract=1953467.
The authors analyze a two-period signaling model in which a representative entrepreneur in a regional economy has a project that generates a random cash flow and that requires investment that the entrepreneur raises from a competitive market. The project’s type is known to the entrepreneur but not to the investors. Further, the entrepreneur is restricted to issuing debt only or equity only. The authors first show that there is no separating perfect Bayesian equilibrium (PBE) contract involving the issuance of equity only, that there exists a pooling PBE contract involving the issuance of equity only, and that a debt contract is preferred to an equity contract by the entrepreneur. Next, they suppose that the entrepreneur incurs a non-pecuniary cost of financial distress F>0 whenever he is unable to make a repayment at time t=1. The authors provide conditions on F under which a pooling PBE contract with debt exists and a separating PBE contract with debt and equity exists. Finally, the authors examine whether a high type entrepreneur will prefer a setting with a cost of financial distress (F>0) or a setting in which there is no such cost (F=0).
K. A. Bauer, Buying and Selling a High-Tech Business, 29 Managing Intell. Prop. 19-24 (1993).
Albert V. Bruno & Tyzoon T. Tyebjee, The Entrepreneur's Search for Capital, 1(1) J. Bus. Venturing 61-74 (1985).
Abstract: Provides information on the factors considered by entrepreneurs in search of risk capital. Discussion on the financing of new businesses; Details of venture capital; Analysis of risk capital.
Rodrigo Canales, From Ideals to Institutions: Institutional Entrepreneurship in Mexican Small Business Finance (2011), available at http://ssrn.com/abstract=1763385.
This paper analyzes the creation of the market for small business credit in Mexico, which presents a rare opportunity to explore the mechanisms of institutional entrepreneurship. The paper analyzes successful and unsuccessful attempts to activate small business lending to determine the organizational, structural, and personal aspects that allowed certain groups of individuals and not others to succeed. The paper proposes that, contrary to conventional thought, institutional change is not rare because institutional entrepreneurs are scarce. In fact, they are quite prevalent. What keeps most institutional entrepreneurs hidden from view is preference falsification, or the distinction that institutions function through the coordination of common beliefs, while private beliefs can diverge wildly. A central challenge of institutional entrepreneurship, therefore, is the transformation of the private beliefs of a few into common beliefs that can support new institutions. The paper argues that institutional entrepreneurship, while common, seldom succeeds because it entails a sequence of relatively unlikely events, including the recognition of an opportunity, the execution of organizational experiments, and the creation of public knowledge. Each stage of institutional entrepreneurship requires a combination of personal and structural qualities that are rarely found in a single individual, which explains why so few of them succeed.
Ben R. Craig et al., Public Policy in Support of Small Business: The American Experience, 6 Ohio St. Entrepren. Bus. L.J. 457 (2011).
Information problems in small enterprise credit markets can result in a market equilibrium characterized by credit rationing. These information problems are potentially more severe during sharp economic downturns such as the recent Great Recession. Government interventions to alleviate credit constraints on small firms need to be designed to correct the specific market failure resulting in socially suboptimal credit flows. The authors argue that Small Business Administration loan guarantees are a potentially appropriate intervention and provide a review of empirical research that supports the authors’ contention.
Raquel Fonseca, Pierre-Carl Michaud & Thepthida Sopraseuth, Entrepreneurship, Wealth, Liquidity Constraints, and Start-up Costs, 28 Comp. Lab. L. & Pol'y J. 637 (2006).
Abstract (from authors):
Our paper focuses on the effect of liquidity constraints and start-up costs on the relationship between wealth and fraction of entrepreneurs in an economy. We consider a model of heterogeneous agents with occupational choice. Wealth and entry into entrepreneurship are endogenous. Entrepreneurs can borrow capital from banks to set up or expand their business. However, because of limited enforceability of loan contracts, banks are reluctant to grant credit to entrepreneurs with low levels of wealth. Wealth plays the role of collateral and limits default. We introduce additional institutional features, namely start-up costs, to the model. In addition to savings and entrepreneurial choices, used by Cagetti and De Nardi, we allow the individual to consider inactivity. Indeed, old individuals may withdraw from the labor force rather than continue activity. We then get a complete picture of occupational choices in old age, as a less generous old age pension may entice individuals to delay retirement and consider starting their own business. They can also have strong incentives to be inactive (retirement, unemployment, or disability can be here interpreted as being inactive). Start up costs, by shifting the expected entrepreneurial gains, may actually affect these choices. The model predicts that with liquidity constraints, the probability of entering entrepreneurship is an increasing function of individual wealth. The originality of our paper is to show that the introduction of start-up costs tends to flatten this relationship. This is highly relevant since we show that start-up costs and liquidity constraints are positively correlated across countries but have different effects on the relationship between entrepreneurship and with wealth.
Luis Armando Garcia, Teaching Private Equity Investment in Higher Education: An Entrepreneurship Approach (2011), available at http://ssrn.com/abstract=1944809.
A determining factor in entrepreneurship is the level of education of the entrepreneur. Universities and institutions of higher learning are called to design courses and support to potential entrepreneurs. European universities taking part in the European Higher Education Area (EHEA) should exploit the potential business network that students have at their reach inside the EU area. Entrepreneurship education warrants an improvement of financial literacy, for studies have shown that in many developed nations consumers are poorly informed about financial products and practices. Venture Capitalists consider universities as sources of truly exceptional innovations and inventions, which can develop into successful companies within a short period of time. The Private Equity Investment industry has acquired enormous popularity as an alternative investment asset class over the past two decades. Its backers claim that its extensive economic benefits come from a model that aligns the interest of both owners and management. Perhaps it has never been easier than right now for companies and start-ups to locate, contact and engage potential sources of Private Equity Investment and/or Venture Capital Funds. Entrepreneurship and financial Literacy should be taught openly in Business Schools around the world. The entrepreneurship industry is ready to join forces with academics and students in order to confront the unharmonious aspects of the current curriculum of entrepreneurship education.
Emilia Garcia-Appendini, Lending to Small Businesses: The Value of Soft Information (2011), available at http://ssrn.com/abstract=1750056.
Abstract (from author):
The authors examine whether banks use soft information in their lending decisions. To overcome the problem of soft information measurement, we analyze whether publicly available variables that are correlated with the borrowers' credit quality are more significant in explaining the lending decisions of banks that have no soft information. They find that the power of these variables to predict credit outcomes is lower whenever the bank has access to soft information. The results indicate the importance of soft information in small business lending, and are robust to several measures of soft information availability, and to a potentially endogenous relationship between soft information and credit quality.
Manuel Gonzalez-Diaza & Vanesa Solis-Rodriguez, Why Do Entrepreneurs Use Franchising as a Financial Tool? An Agency Explanation, 27 J. Bus. Venturing 325 (2012).
When and why one type of entrepreneur (franchisor) attracts to its ventures another type of entrepreneur (franchisees) instead of passive investors is a central concern in entrepreneurship literature. Based on the informativeness principle of the principal–agent model, we claim that franchisees are not such an expensive financial tool as has been argued in the literature because their compensation (return) is more efficiently designed: it directly depends on variables which are under franchisees' control. We therefore link agency and financial explanations for franchising. Most of our findings show that, once the agency argument is controlled for, the higher the cost of alternative funds for the franchisor (estimated through different variables), the more the franchisor will rely on expansion through franchising as opposed to company-ownership. The authors interpret this as a clue that franchising is also used as a financial capital source.
Michelle M. Harner, Mitigating Financial Risk For Small Business Entrepreneurs, 6 Ohio St. Entrepren. Bus. L.J. 469 (2011).
Financial distress by definition threatens a company's viability. Entrepreneurial and start-up entities are particularly vulnerable to this threat. Yet, much of the discussion following the recent recession focuses almost exclusively on financial institutions and “too-big-to-fail” entities. This essay re-examines lessons gleaned from the recession in the context of smaller, entrepreneurial entities. Specifically, it analyzes how small business entrepreneurs might invoke principles of enterprise risk management to mitigate the long-term impact of financial distress on their business models. It also considers related refinements to extant small business regulations, including the U.S. bankruptcy laws. The essay's primary objective is to help policymakers, entrepreneurs and investors rethink financial distress and recognize opportunities for “successful failures.”
Hans K. Hvide & Jarle Moen, Lean and Hungry or Fat and Content? Entrepreneurs' Wealth and Start-Up Performance, 56(8) Mgm’t. Sci. 1242 (2010).
Abstract (from authors):
If entrepreneurs are liquidity constrained and not able to borrow to operate on an efficient scale, economic theory predicts that entrepreneurs with more personal wealth should do better than those with less wealth. We test this hypothesis using a novel data set covering a large panel of start-ups from Norway. Consistent with liquidity constraints, we find a positive relation between founder prior wealth and start-up size. The relationship between prior wealth and start-up performance, as measured by profitability on assets, increases in the first three wealth quartiles. In the top wealth quartile, however, profitability drops sharply in wealth. Our findings are consistent with a luxury good interpretation of entrepreneurship and that higher wealth may induce a less alert or a less dedicated management. We conclude that an abundance of resources might do more harm than good for start-ups.
Paul Kedrosky & Daniel Stangler, Financialization and Its Entrepreneurial Consequences, (Ewing Marion Kauffman Foundation Research Paper, 2011), available at http://ssrn.com/abstract=1798605.
The U.S. financial sector expanded dramatically over the last hundred years in both relative and absolute terms. This expansion has had a number of causes and consequences, most of which can be lumped broadly under the heading of increased 'financialization' of the economy. This led, in part, to the financial crisis of 2008/2009. In this paper, however, we consider the implications of financialization for the structure of the U.S. economy, in particular for entrepreneurship.
Reddi Kotha & Gerard George, Friends, Family, or Fools: Entrepreneur Experience and It's Implications for Equity Distribution and Resource Mobilization (2012), available at http://ssrn.com/abstract=2004330.
Abstract (from authors):
Who helps entrepreneurs raise the resources they need and how much equity does an entrepreneur distribute in return? The authors use a sample of 611 entrepreneurs in the U.S. to examine why some entrepreneurs are more likely than others to distribute ownership selectively to helpers. The authors find that entrepreneurs with specific industry experience and start-up experience are able to provide ownership more selectively and raise more resources from their helpers. The authors refine the categorization of social ties further to make a distinction between professional and familial ties to show that the ownership distribution and types of resource contributions vary by the mix of ties in the entrepreneur’s helper network. These findings have implications for theories of resource assembly, social structure and entrepreneurship, and organization design.
Nataliia Kravchenko et al., Information Externalities and Small Business Lending by Banks: A Comparison of Urban and Rural Counties in the U.S. (2011), available at http://ssrn.com/abstract=1968965.
(adapted from authors):
It is widely recognized that small business is not only an important source of employment but is the genesis of virtually all successful large enterprises. Given their size and characteristic opaqueness, Small and Medium Enterprises (SMEs) tend to be more financially constrained than large firms because of the lack of access to external financing from both banks and capital markets. Though building a relationship provides the loan officer more information about the individual entrepreneur, there are other factors that can influence the success or failure of an enterprise. The authors divide the entrepreneurial information available to bank loan officers into three segments: information about competition in the local banking market, information about success and failures of other SMEs in the local market, and information about how well other banks are performing in the local market. The primary purpose of this paper is to find proxies for this entrepreneurial information and to gauge its impact on bank lending in a geographical area. The authors then test to see how their proxies for this information impact the dollar volume of small business lending. The analysis uses county level data as the geographical area and controls for general economic conditions such as the level of income and the endowments of human capital. The paper confirms the importance of entrepreneurial information in influencing the level of SME lending by banks.
John B. Maier II & David A. Walker, The Role of Investment Capital in Financing Small Business, 2 J. Bus. Venturing 207-214 (1987).
Abstract: Deals with a study which examined venture capital firms that participated in small business financing. Characteristics of the firms; Allocation of resources; Role of venture capital in financing small business.
Colin M. Mason & Richard T. Harrison, Closing the Regional Equity Capital Gap: The Role of Informal Venture Capital, 9 Small Bus. Econ.153-172 (1995).
Charles Murnieks et al., ‘I Like How You Think': Similarity as an Interaction Bias in the Investor–Entrepreneur Dyad, 48 J. Mgmt. Studies 1533 (2011), also available at http://ssrn.com/abstract=1932523.
(adapted from authors):
Investigating the factors that influence venture capital decision-making has a long tradition in the management and entrepreneurship literature. However, few studies have considered the factors that might bias an investment decision in a way that is idiosyncratic to a given investor–entrepreneur dyad. The authors do so in this study. Specifically, the authors build from the literature on the ‘similarity effect’ to investigate the extent to which decision-making process similarity (shared between the investor and the entrepreneur) might bias or otherwise impact the investor's evaluation of a new venture investment opportunity. The findings suggest venture capitalists evaluate more favourably opportunities represented by entrepreneurs who ‘think’ in ways similar to their own. Moreover, in the presence of decision-making process similarity, the impacts of other factors that inform the investment decision actually change in counter-intuitive ways.
Serena Sandri, Christian Schade, Oliver Musshoff & Martin Odening, Holding On for Too Long? An Experimental Study on Inertia in Entrepreneurs’ and Non-Entrepreneurs’ Disinvestment Choices, 76(1) J. Econ. Behav. & Org. 30 (2010).
Abstract (from Elsevier):
Disinvestment, in the sense of project termination and liquidation of assets including the cession of a venture, is an important realm of entrepreneurial decision making. This study presents the results of an experimental investigation modeling the choice to disinvest as a dynamic problem of optimal stopping in which the patterns of decisions are analyzed with entrepreneurs and non-entrepreneurs. Our experimental results reject the standard net present value approach as an account of observed behavior. Instead, most individuals seem to understand the value of waiting. Their choices are weakly related to the disinvestment triggers derived from a formal optimal stopping benchmark consistent with real-options reasoning. We also observe a pronounced ‘psychological inertia’, i.e., most individuals hold on to a losing project for even longer than real-options reasoning would predict. The study provides evidence for entrepreneurs and non-entrepreneurs being quite similar in their behavior.
Arnout Seghers et al., The Impact of Human and Social Capital on Entrepreneurs’ Knowledge of Finance Alternatives, 50 J. Small Bus. Mgmt. 63 (2012).
(adapted from journal): Building upon prior research that demonstrates how the limited knowledge of finance alternatives of entrepreneurs may cause suboptimal finance decisions, this paper examines how entrepreneurs’ human and social capital influence their knowledge of finance alternatives. For this purpose, the authors use survey data from 103 Belgian start-ups. Results demonstrate that entrepreneurs with a business education and entrepreneurs with experience in accountancy or finance have a broader knowledge of finance alternatives. Having a strong network in the financial community is further positively associated with the knowledge of finance alternatives. However, generic human capital, including higher education, industry experience, and management experience, is almost not related with the knowledge of finance alternatives.
Yochanan Shachmurove, First-Round Entrepreneurial Investments: Where, When and Why? (PIER Working Paper No. 11-017, 2011), available at http://ssrn.com/abstract=1873356.
This paper examines the where, when and why of first round entrepreneurial investment activity in the United States from the first quarter of 1995 until the second quarter of 2010. The paper analyzes these venture capital investments taking into consideration the role of macroeconomic variables, region, and industry. Additionally, trends in regional and industrial investments are evaluated using statistical and graphical analyses. By studying these findings, one is able to understand the impact of different periods of economic growth on venture capital investments. Lastly, the shock of the dot.com bubble and recent financial crisis are integrated into the findings.
Oleksandr Talavera et al., Social Capital and Access to Bank Financing: The Case of Chinese Entrepreneurs, 48 Emerging Markets Fin. & Trade 55 (2012).
This paper presents the results of a study of the effects of social capital on access to bank financing. Based on a Chinese nationwide survey, our analysis suggests that entrepreneurs who contribute to charities are more likely to be successful in loan applications. In addition, we find that political party membership is an important determinant of state-owned bank financing, whereas time spent on social activities increases the probability of obtaining loans from commercial banks. Therefore, our data provide some evidence for substitutability between various types of social capital. To obtain a loan from a specific type of bank, an entrepreneur should access the relevant social network.
John Reinecke Thorne, Alternative Financing for Entrepreneurial Ventures, 13 Entrepreneurship: Theory & Prac. 7-9 (1989).
Abstract: The article focuses on the alternative financing practice for entrepreneurial ventures. The conventional concept of financing for entrepreneurial ventures is that investments are made in the company stock by the entrepreneurs, their partners and later by investors. Variations of this theme include combinations of debt and equity. Since bank borrowings to start companies almost always include personal guarantees and collateral, borrowing is in effect putting personal funds at risk and is equivalent to investing inequity. In practice, a surprising number of new companies are financed substantially or sometimes entirely from other sources. It is the entrepreneur's ability to find and exploit other sources of funding that often identifies the entrepreneurial character of the individual. The entrepreneur identifies the business opportunity and gathers the resources to develop the business. The methods used in acquiring these scarce resources are important characteristics of entrepreneurs. Some of the techniques used to acquire substantial resources are borrowing from suppliers and service providers, dealing with customers, free or low-cost labor, raising of non-equity funds and so on.
Jeffry A. Timmons, A Business Plan Is More Than a Financing Device, 14 Harv. Bus. Rev. (Mar.-Apr. 1980).
Brian Uzzi, Embeddedness in the Making of Financial Capital: How Social Relations and Networks Benefit Firms Seeking Financing, 64 Am. Soc. Rev. 481-505 (1999).
Abstract (from author): This article investigates how social embeddedness affects an organization's acquisition and cost of financial capital in middle-market banking--a lucrative but understudied financial sector. Using existing theory and original fieldwork, it develops a framework to explain how embeddedness can influence which firms get capital and at what cost. It then statistically examines those claims using national data on small-business lending. At the level of dyadic ties, it finds that firms that embed their commercial transactions with their lender in social attachments receive lower interest rates on loans. At the network level, firms are more likely to get loans and to receive lower interest rates on loans if their network of bank ties has a mix of embedded ties and arm's-length ties. These network effects arise because embedded ties motivate network partners to share private resources, while arm's-length ties facilitate access to public information on market prices and loan opportunities so that the benefits of different types of ties are optimized within one network. It concludes with a discussion of how the value produced by a network is at a premium when it creates a bridge that links the public information of markets with the private resources of relationships.
Howard E. Van Auken & Richard Carter, Acquisition of Capital by Small Business, 27 J. Small Bus. Mgmt. 1-9 (1989).
Dennis R. Young & Mary Clark Grinsfelder, Social Entrepreneurship and the Financing of Third Sector Organizations, 17 J. Pub. Affairs Ed. 543 (2011).
In this paper, we review the literature on entrepreneurship and the skill sets required by entrepreneurs operating in different sectors of the economy. Case studies from the social enterprise literature are examined in some detail. We search for distinctions between entrepreneurship in the business and public sectors and entrepreneurship in the nonprofit sector and relate this to the variations in financial support found among nonprofit sector organizations. We conclude that third sector social entrepreneurs are likely to require a different mix of skills than business entrepreneurs. In particular, political skills broadly defined, and the ability to secure and maintain charitable support, appear to be common to successful social enterprise ventures. Hence, taking too narrow a view of social entrepreneurship and social enterprise by confining it to the traditional business model of entrepreneurship constrains the potential benefits of developing social entrepreneurship in the third sector. This implies that education of potential social entrepreneurs should be broadly construed, combining business, public and nonprofit based instruction.
Peter A. Zaleski, Start-Ups and External Equity: The Role of Entrepreneurial Experience, 46 Bus. Econ. 43 (2011).
Abstract (from author):
Interest in entrepreneur ship has increased dramatically over the last two decades. Because of the role that entrepreneur ship plays in economic development, an understanding of the financing of business start-ups is essential. A long-standing problem for many business start-ups is acquiring external equity during the first year of operations. This paper analyzes the determinants of obtaining external equity. Special consideration is given to the role of entrepreneurial experience. The results suggest that entrepreneurial experience impacts a start-up's ability to obtain external equity.
Allen N. Berger & Gregory F. Udell, Relationship Lending and Lines of Credit in Small Firm Finance 68 J. Bus. 351-381 (1995).
Ben R. Craig, William E. Jackson III, & James B. Thomson, On SBA-Guaranteed Lending and Economic Growth, Fed. Reserve Bank Cleveland (2003) (Working Paper). www.clevelandfed.org/Research/Workpaper/2005/WP0503.pdf
Community Financial Resource Center, http://www.cfrcla.org/
Dow Jones, Products & Services, Knowledge Center
Raquel Fonseca, Pierre-Carl Michaud & Thepthida Sopraseuth, Entrepreneurship, Wealth, Liquidity Constraints and Start-Up Costs (2007). http://www.rand.org/pubs/working_papers/WR500/
Robert L. Formaini, The Engine of Capitalist Process: Entrepreneurs in Economic Theory, Econ. & Fin. Rev., Fed. Reserve Bank Dallas, (2001), available at http://www.dallasfed.org/assets/documents/research/efr/2001/efr0104a.pdf.
John Freear & William Wetzel, Jr., Who Bankrolls High-Tech Entrepreneurs, 5 J. Bus. Venturing 77-89 (1990).
NVST Private Equity Network, Resources
vFinance, Inc., The Center for Innovative Entrepreneurship, CIE Programs and Services for Entrepreneurs and Investors
Sarah E. Needleman & Emily Maltby, Start-Ups Crowd 'Accelerators' - As 'Boot Camps' Proliferate, Doubts Grow About Their Value, Wall St. J., May 24, 2012, at B1.