Impact of intellectual capital on the financing of startups with new business models

Abstract

Purpose Financing investments in a knowledge-intensive sector may be more difficult as there is a greater degree of uncertainty and asymmetries of information. This paper aims to examine whether a company’s intellectual capital (human capital, relational capital and structural capital) can serve as a quality signal in the financing of health care startups with new business models. Design/methodology/approach The study constructed a manual database using several paid and unpaid databases. This paper collected random data from 204 startups that obtained funding during the 2014–2017 period and used signaling theory to examine the factors that impact access to external financing for Indian health care technology startups. Findings This paper found that venture capitalists partly base their financing decisions on the relational capital of the startup represented by startups’ age and the average number of website visits, the presence of a syndicate of investors. Human capital variables and structural variables do not show much significant impact. This paper also find some business models show a negative impact on financing implying that investors are reluctant to invest in new technologies that carry more uncertainty and take a longer time to become profitable. Research limitations/implications Before concluding this paper, it is important to acknowledge the limitations of the study and some implications for future research purposes. First, the study is conducted on only 204 startups from India, and as such, it suffers from a small sample size, like many other comparable survey-based studies in entrepreneurship. Second, the results are obtained with respect to data collected from Indian startups and represent the Indian context which limits the generalization on a global level. Practical implications The results suggest that years of experience and prior relevant experience, do not actually impact the financing of a new venture. These results are crucial as India has a unique demographic advantage over other countries in relation to age. If young minds are adequately nurtured, this can result in innovation, entrepreneurship and job creation (which still remains as a foremost challenge for India). Social implications From a policy perspective, a number of implications emerge from the current study. There is a need for ameliorating the capacity of the education system in providing top-quality support including a greater focus on entrepreneurship courses and to replicate the education delivery model from top foreign institutes. The government should take this opportunity to revive the system of education and follow the methodology of elite institutes and to develop entrepreneurship spirit in other colleges and schools. Originality/value Financing the investments of young startups with new business models in knowledge-based sectors may be more difficult. In this paper, this paper demonstrates that startups have to effectively use and manage their intellectual assets to achieve sustainable competitive advantage. The findings of the paper emphasize the role of intellectual capital in securing financing through venture capital.

The family’s effect on knowledge sharing in family firms

“…Second, we contribute to the KS literature by highlighting the important role that founding leaders and active owners can have in this process. Although researchers have explored the importance of entrepreneur characteristics for KS within new ventures (Nigam et al, 2020;Siqueira and Honig, 2019), there is less understanding regarding how the values of founders can impact the KS environment within a firm. This study provides initial insights into how the values that founders instill in their families (i.e.…”

Turning eco-investments into sustainable competitive advantages: an exploratory case study of eco-oriented startup

“…During the interview sessions, the three founders shared that there might be a couple local business that also works on non-animal leather alternatives, however, they are significantly smaller in size and in capital therefore they are not a comparable competitors to MYCL. Businesses that need asset-heavy investments raise concern for potential investors (Nigam et al, 2021), especially for those that rely on quick return of investment (ROI). This type of startup might not be attractive if assessed by its historical financial performance.…”

“…In attempts to secure more funding, MYCL has also joined multiple grant awards and special-intention accelerator programs such as, respectively, DBS Foundation Grant Program and Third Derivative. The climate tech accelerator is a joint venture of RMI and New Energy Nexus as a form of syndicate of investors which is positively affect venture capitalist financing decision (Nigam et al, 2021). Unlike general incubator and accelerator companies, eco-investment might actually have some direct effects on the program acceptance.…”

“…Not only that environment values and commitments contribute to the success of acquiring funds, founder's level of motivation, education and experience is related positively to venture performance (Peña, 2002). Structural Capital (Knowledge): Intellectual properties such as patents and trademarks is a legally protected form of structural capital which refers to the organizational knowledge embedded in business process and procedures (Nigam et al, 2021). MYCL's two WIPO patent contribute to the development of competitive advantage since it is valuable, rare, inimitable and organized.…”

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“…While these results are consistent with what was found in previous studies, where the study (Masouras, Pistikou, & Komodromos, 2021) proved that those responsible for preparing investment projects approved by the Board of Directors in small and medium-sized companies are employees from outside the company, and they advise the managing director; While in the rest of these organisations it is implemented by the managing director jointly with the board of directors, without using specialised programs for preparing and evaluating investment projects and on many occasions, they only detail it because it is a prerequisite for requesting funding. In institutions, many studies such as (Mittal & Raman, 2021;Mohamad, Mustapa, & Razak, 2021;Nigam, Mbarek, & Boughanmi, 2021) showed the current situation in the majority of small and medium-sized companies not to rely on high-quality feasibility studies in terms of making investment decisions, which reflects that they are developed based on decisions Determined by the events in their environment when they occur, sometimes intuitively, since it is also clear that they are rational in decision-making, they invest in projects that are needed at the moment without a capital budgeting that allows planning in advance, without seeing into the future, and is considered more as an expense operational capital investment; disbursement of funds according to current conditions, without carrying out planning according to production and calculating costs without defining previously planned goals and objectives; They have no future vision. They do not set expectations to guide them in making investment decisions.…”