Speed of Venture Financing for Emerging Technology‐Based Entrepreneurial Firms as a Function of Founder Reputation

Abstract

One of the major commercialization hurdles for technology-based entrepreneurial enterprises is financing and the speed of its acquisition. This is compounded in the case of emerging technology-based enterprises by the nature of their technology acquisition and founding team structure. Many of these firms do not have founders with extensive reputations in the financial community. If founder reputation is important to funding sources with regard to speed and access, and emerging technology commercial development is important for solving twentyfirst-century problems and generating economic growth, then there is cause for concern. Here we build on prior research and data from 140 Internet-based firms to examine the effect that founder reputation has on the ability of an enterprise to swiftly obtain financing. Our results suggest that founder reputation expedites ventures' quick access to public but not to private financing. In addition, our results demonstrate that venture capital financing obtained early on and financing by large venture capital syndicates delay access to public financing for founders with extensive reputations.

Early-stage fundraising of university spin-offs: a study through demand-site perspectives

“…This outcome partially contradicts the results of prior researchers (Heuven and Groen 2012;Rasmussen and Sørheim 2012) who emphasized the important role of the founder's social networks in the early-stage financing of new ventures. These studies indicate that the founders of new ventures can quickly access public or private financial resources by utilizing their reputations (Mahto and Khanin 2013) and the strength of their network ties (Heuven and Groen 2012;Shane and Cable 2002;Shane and Stuart 2002).…”

Blockchain technology and startup financing: A transaction cost economics perspective

“…The transaction costs involved in startup financing is so high that many entrepreneurial ecosystems have multiple redundant entities competiting with each other, thereby leading to significant inefficiencies in the system (Mahto et al, 2018a). Many investors, especially Venture Capitalists (VCs), design their own systems and practices to deal with high information asymmetry and uncertainties inherent in the entrepreneurial finance ecosystem (e.g., Mahto and Khanin, 2013). For example, most VCs and angel investors specialize in only certain industries, while some VCs prioritize either entrepreneurs or venture quality in their investment decision (Khanin et al, 2008).…”

“…Further, entrepreneurs reduce their transaction cost by preferring investment from reputable VCs even when it comes with significant cost (Mahto et al,2018b). Even with prevalent strategies for dealing with high transaction costs, some investors (e.g., VCs) further refine their strategies by focusing on specific characteristics of either entrepreneur (e.g., reputation) or their venture ( Mahto and Khanin, 2013). We believe the blockchain technology might be useful in reducing the hurdles in this environment.…”

Introduction to the Field of Emerging Technology Management

“…One example of such progress is the improvement in understanding learning curves (Linton & Walsh, ) focusing on the technological development nature of emerging technologies. Another would be to create a deeper understanding of the development of ‘patient’ venture capital often required by emerging technology‐based firms (Mahto & Khanin, ). Still others search for value that open innovation (Chiaroni, Chiesa & Frattini, ) or consortia can bring to the management of the use of emerging technologies (Allarakhia & Walsh, ; Park & Kang, ; Ritala & Hurmelinna‐Laukkanen, ).…”

“…Mahto and Khanin () address one of the major commercialization hurdles for emerging technology‐based entrepreneurial enterprises – ‘patient capital acquisition’. Traditional wisdom would suggest that emerging technology‐based entrepreneurial firms, which often are lead by technologists with limited prior interaction or reputation with venture capitalists, would find difficulties in both obtaining access to and acquiring capital in a timely manner from these venture capitalists.…”