How Do Entrepreneurial Technology Firms Really Get Financed, and What Difference Does It Make?

Abstract

This paper discusses an emerging heterodoxy in the academic literature on entre- preneurial technology finance that is based on the idea of "bootstrapping." Bootstrap finance is a third approach (emphasizing funding technology ventures through revenue and other non-traditional sources), alongside the orthodoxies of traditional business finance (emphasizing debt) and contemporary venture finance (emphasizing venture capital and public equity). The paper also reports the results of an original empirical study of entrepreneurial technology firms in the bioscience-related industries in the United States. The data from the study show that "unorthodox" bootstrap financing is actually the dominant kind of financing in those high technology industries. The data are analyzed to explore industry effects, regional milieux effects, and entrepreneurial-status effects on the relative mix of bootstrap finance and the three traditional sources of finance: venture capital, public equity and debt finance. The effects on firm behavior and performance of variations in financing strategy are explored, with implications for managers of entrepreneurial technology ventures and educators concerned with technology entrepreneurship.

Social Bricolage: Theorizing Social Value Creation in Social Enterprises

“…Bootstrapping techniques aim to avoid using finance raised from external investors such as venture capital, public equity and debt financing (Ebben & Johnson, 2006;Willoughby, 2008). Winborg and Landstrom (2001) identify six specific bootstrapping methods, namely owner financing, minimizing monies owed to the firm, sharing equipment and/or staff with other firms, delaying payment of monies owed by the firm, minimizing inventory, and subsidy finance.…”

What impact does intellectual property have on the business performance of technology firms?

“…Some of that literature approaches financial performance from the vantage point of the firm's ability to attract capital or increase the value of its capital stock through the strength of its intellectual property [see, e.g. : Bosworth and Rogers (2001); Bessler and Bittelmeyer (2008); Cockburn and Griliches (1988); Hsu and Ziedonis (2013); Mann and Sager (2007); Willoughby (2008)] and the general conclusion of that literature is that, in the main, intellectual property makes a positive difference to a firm's ability to attract outside investment. While the literature has not yet reached consensus on the question of whether the capital-raising benefits of intellectual property accrue to small entrepreneurial firms as much as they do to large mature firms [see, e.g., Bessen (2008); Willoughby (2008)], the general conclusion of the literature is that there is a positive relationship between a firm's intellectual repertoire-especially its patent portfolio-and its ability to raise capital, regardless of the size of the firm.…”

“…: Bosworth and Rogers (2001); Bessler and Bittelmeyer (2008); Cockburn and Griliches (1988); Hsu and Ziedonis (2013); Mann and Sager (2007); Willoughby (2008)] and the general conclusion of that literature is that, in the main, intellectual property makes a positive difference to a firm's ability to attract outside investment. While the literature has not yet reached consensus on the question of whether the capital-raising benefits of intellectual property accrue to small entrepreneurial firms as much as they do to large mature firms [see, e.g., Bessen (2008); Willoughby (2008)], the general conclusion of the literature is that there is a positive relationship between a firm's intellectual repertoire-especially its patent portfolio-and its ability to raise capital, regardless of the size of the firm. The following quote from Mann and Sager (2007, p. 206), based on their own empirical research on the place of intellectual property in venture capital financing for software firms, represents the signal theme in the literature: … there are strongly significant correlations between variables of patenting … and various proxies for strong performance: rounds of financing, total investment, exit status, reaching a late stage of financing, and longevity.…”

Intellectual Property Management and Technological Entrepreneurship

“…An additional (fine-tuned) analysis of all firms which made it through the above two inquiry processes revealed the verifiable industry population in New York State to be 273 bioscience technology firms (by May 1997) and 116 bioscience technology firms in Utah (by July 1998). † For results of the partner study to this study (an investigation of the finances of the biosciencetechnology industries), including a description of the sample selection and data collection process that produced the data for both this study and that study, see Willoughby [2008].…”

“…§ Please note that the data collection method (Section 4.2) and the basic characteristics of firms in the sample (Section 4.3) are identical to the equivalent sections of the published results of the partner study [Willoughby (2008)…”