The determinants of bootstrap financing in crises: evidence from entrepreneurial ventures in the COVID-19 pandemic

Block, Joern; Fisch, Christian; Hirschmann, Mirko

doi:10.1007/s11187-020-00445-6

Cited by 81 publications

(55 citation statements)

References 52 publications

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“…We focus on entrepreneurs because, on the one hand, they have been severely hit by the COVID-19 crisis (Bartik et al, 2020;Beland et al, 2020;Block et al, 2021;Fairlie, 2020;Meahjohn & Persad, 2020;Thorgren & Williams, 2020), while, on the other hand, the surviving incumbent ones (as well as the new ones) are expected to play a crucial role in the recovery of economic disasters (Eggers, 2020;Morrish & Jones, 2020;Zvikaramba et al, 2020). By recovery, we do not simply mean the reconstruction of the pre-COVID-19 economy but rather an economy with a higher emphasis on existing long-term goals (such as lower carbon dependence (Markard & Rosenbloom, 2020)) and on new COVID-19-related wisdom (such as investment in health care and medical technologies and services, investment in local initiatives instead of international supply chain components, investment in new business models in the hotel and catering industry, and investment in gadgets making distance communication easier).…”

Section: Discussionmentioning

confidence: 99%

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Risk of burnout in French entrepreneurs during the COVID-19 crisis

et al. 2021

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The COVID-19 crisis presents manifest threats for entrepreneurs since their business survival is often directly at stake given the alarming economic downturn. This existential threat, together with their crucial role in the economy, is the reason for the plethora of public financial support schemes being implemented throughout the entire world. However, support schemes for mental health are lacking. We aim to investigate, first, whether burnout levels have increased during the crisis and, second, whether burnout levels during the COVID-19 crisis depend on the threat of becoming ill, having to stay at home due to the lockdown, and/or having to file for bankruptcy due to the economic downturn. We do so using seven data sets of French entrepreneurs with a temporal comparison of averages and two data sets of French entrepreneurs with a cross-sectional analysis of individuals. Our findings show that indeed, the risks of burnout have increased during the pandemic and that the threat of bankruptcy is the dominant threat. As an increasing number of studies in the entrepreneurship literature indicate that entrepreneurs’ mental health influences their activities, as well as the growth and sustainability of their ventures, our study is important and timely in its contribution, as it takes a close look at the perception of burnout in general and more specifically during the COVID-19 pandemic. Plain English Summary The risk of burnout in French entrepreneurs has increased significantly during the COVID-19 pandemic, which calls for not only financial support but also other forms of support. The COVID-19 pandemic presents many threats for entrepreneurs since their business survival is often directly at stake. These threats are not just financial but also related to health, such as the threat of burnout. The findings of our study show that for French entrepreneurs, the threat of burnout increased after the arrival of the COVID-19 pandemic. This finding raises the question whether this outcome is due to the threat to health, the effects of the lockdown, or the threat of bankruptcy. It appears that all three factors play important roles, although the financial threat is the dominant threat. These findings call for the extension of entrepreneurial support systems beyond the financial area by also involving an “entrepreneurship care” aspect, which includes telephone support, webinars, and mental help facilities.

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Section: Discussionmentioning

confidence: 99%

“…The COVID-19 pandemic has had a serious financial impact on small businesses (Bartik et al, 2020;Block et al, 2021;OECD, 2020) and entrepreneurs (Fairlie, 2020) due to a sharp decline in business activities. This has led to (partial) layoffs and temporary furloughs (Bartik et al, 2020).…”

Section: Economic Risk Perceptions and Burnoutmentioning

confidence: 99%

Risk of burnout in French entrepreneurs during the COVID-19 crisis

et al. 2021

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“…In line with this, based on an online survey conducted in April and May 2020,Block et al (2021) report that the more severe the COVID-19 crisis was for entrepreneurial ventures in Germany, the more they resorted to bootstrap financing. Small entrepreneurial businesses may also depend more than larger firms on relational finance with face-toface interaction, further impeding their access to financing during the pandemic.…”

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confidence: 85%

The early impacts of the COVID-19 pandemic on business sales

2021

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COVID-19 led to a massive shutdown of businesses in the second quarter of 2020. Estimates from the Current Population Survey, for example, indicate that the number of active business owners dropped by 22% from February to April 2020. We provide the first analysis of losses in sales among the universe of businesses in California using administrative data from the California Department of Tax and Fee Administration. Losses in taxable sales average 17% in the second quarter of 2020 relative to the second quarter of 2019 even though year-over-year sales typically grow by 3-4%. We find that sales losses were largest in businesses affected by mandatory lockdowns such as accommodations, which lost 91%, whereas online sales grew by 180%. Placing business types into different categories based on whether they were considered essential or nonessential (and thus subject to early lockdowns) and whether they have a moderate or high level of person-to-person contact, we find interesting correlations between sales losses and COVID-19 cases per capita across counties in California. The results suggest that local implementation and enforcement of lockdown restrictions as safety measures for public health and voluntary behavioral responses as reactions to the perceived local COVID-19 spread both played a role. Plain English Summary Business sales dropped by 17% on average due to the pandemic during the second quarter of 2020 in California. Accommodations lost 91% of sales, whereas online sales grew by 180%. Sales fell more steeply in counties with more COVID-19 cases. We examine how much businesses lost in sales using administrative sales tax data. The average losses of 17% in the second quarter of 2020 relative to the second quarter of 2019 occurred even though year-over-year sales typically grow by 3-4%. We find that sales losses were largest in businesses affected by mandatory lockdowns such as accommodations, drinking places, and arts, entertainment, and recreation. Distinguishing between essential and nonessential businesses, which were subject to early lockdowns, and by the level of person-to-person contact, we find that local implementation and enforcement of lockdown restrictions for public health safety and voluntary responses to the perceived local COVID-19 spread both played a role. The results suggest that small businesses may need more support from governments and consumers to mitigate the strong shift to online vendors, and that the pandemic must be brought under control as a prerequisite to a full recovery. Supplementary Information The online version contains supplementary material available at 10.1007/s11187-021-00479-4.

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“…It is moreover, also unclear how many waves of the pandemic are to be expected, what measures governments might additionally take or not take to control future waves and whether and how governments will or will not support entrepreneurial activity. This unprecedented level of uncertainty causes significant financial pressure on entrepreneurs (Block et al, 2021;Cowling et al, 2020). In particular, with respect to early-stage financing of innovative startups; the withdrawal of venture capitalists that has been documented in the literature indicates how uncertain key actors in entrepreneurial ecosystems worldwide perceive the situation to be.…”

Section: Covid-19 Uncertainty and Entrepreneurial Team Compositionmentioning

confidence: 99%

Standing up against crisis-induced entrepreneurial uncertainty: Fewer teams, more habitual entrepreneurs

Kuckertz

2021

International Small Business Journal: Researching Entrepreneurs

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The global spread of coronavirus disease 2019 (COVID-19) caused by the novel coronavirus SARS-CoV-2 (severe acute respiratory syndrome coronavirus–2) has led to drastic infection control measures that have dramatically affected societies and economies worldwide. Against this background, it is the purpose of this commentary to illustrate how innovative entrepreneurial activity in particular has been affected by the rising uncertainty caused by the first COVID-19 wave. By comparing innovative North American and European startups established pre-crisis and during the first wave of the pandemic, this commentary suggests that startups founded in the crisis are characterised less by entrepreneurial teams and more by habitual entrepreneurs. Interestingly, women’s entrepreneurial activity seems not to have been affected by the crisis when measured as the proportion of women founders involved in innovative startups pre-crisis and during crisis. The commentary thus, illustrates what particular type of entrepreneur persists during uncertainty and allows us to draw conclusions for policy-making and further research on the interface of entrepreneurship, crisis and uncertainty.

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The determinants of bootstrap financing in crises: evidence from entrepreneurial ventures in the COVID-19 pandemic

Cited by 81 publications

References 52 publications

Risk of burnout in French entrepreneurs during the COVID-19 crisis

Risk of burnout in French entrepreneurs during the COVID-19 crisis

The early impacts of the COVID-19 pandemic on business sales

Standing up against crisis-induced entrepreneurial uncertainty: Fewer teams, more habitual entrepreneurs

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