Financing Unquoted High-Growth Companies: From Extending

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Although more recent studies address the consequences of investor heterogeneity, nearly all of these studies have put the investor in the foreground and the company in the background (Sorensen, 2007; Hochberg, Ljungqvist, and Lu, 2007; Dimov and De Clercq, 2006; Dimov and Shepherd, 2005). In other words, most of these studies have focused on the impact of investor heterogeneity on investor performance, but have largely ignored the impact on portfolio company growth and performance (Hochberg, Ljungqvist, and Lu, 2007). In the second study in this dissertation, I focus on the perspective of the entrepreneurial venture that raises finance instead of the investor that infuses finance in entrepreneurial ventures. This is vital as studying organizational processes from different perspectives may offer different insights into the phenomenon studied (Van de Ven, 2007). Moreover, although scholars agree that particular investors are more beneficial than others, it remains unclear which types of investors will contribute most to company development. The second study in this dissertation titled “Seeking Experienced or Legitimate Partners? A Longitudinal Study on the Impact of Venture Capital Firm Heterogeneity on Portfolio Company Growth” hence focuses on how investor heterogeneity affects portfolio company growth. 1.1.3. Study 3: Early Differences and Persistence in the Entrepreneurial Finance Process: Evidence from High- and Low-Growth Biotechnology Startups A common assumption by finance scholars is that all financial decision-makers are economically rational and make comprehensive finance decisions in such a way that company value is maximized (Subrahmanyam, 2007). Nevertheless, the second study in this dissertation demonstrates that growth- oriented companies end-up with different types of investors and that these investors have a different impact on subsequent company growth. If all entrepreneurs are rational then why do they not all raise finance from high quality investors and why are rents related to affiliating with these better investors not entirely reduced through competition in the factor market? An important question that arises is how entrepreneurs structure their search for finance and why they raise finance from particular investors? 5
Furthermore, in light of current finance theories the finding in the second study that early finance decisions have a long-lasting impact on company growth and development is remarkable. Optimal capital structure theories indicate that all companies can relatively easily rebalance their financial structure and all move towards an optimal target financial structure (Leary and Roberts, 2005; Hovakimian, Opler, and Titman, 2001). This assumption precludes a long-term impact of the financial structure on company development. Hence, a more balanced vision is required which offers more insight why early finance decisions facilitate and/or constrain the subsequent finance process. The final study in this dissertation “Early Differences and Persistence in the Entrepreneurial Finance Process: Evidence from High- and Low-Growth Biotechnology Startups” focuses on dynamics in the finance process. The goal of this study is three-fold. First, it studies the finance process from startup through development of both high- and low performing entrepreneurial companies and identifies key differences in the finance process. Second, it demonstrates how early differences in the finance process originate between these high- and low-growth companies. Finally, I theorize on the processes that explain why early finance decisions may both facilitate and constrain subsequent finance decisions. 1.2. Key Dimensions of Financial Decision-Making and Foundational Finance Theories Modern theory on business finance started with Modigliani and Miller (1958). They demonstrated that in a perfect market characterized by free and directly available information, no transaction costs, rational actors, homogenous expectations and no taxes amongst other assumptions, finance behavior is irrelevant and does not influence firm value. It does not matter whether companies will raise debt or equity finance and short-term or long-term finance to give just two examples. Why? When investors have equal access to financial markets, investors can create any financial structure that is optimal for them, even if the company itself does not offer it. Investors will not pay for something they can create 6
Page 1 and 2: Faculty of Economics and Business A
Page 3: Financing Unquoted High-Growth Comp
Page 7 and 8: Acknowledgements This dissertation
Page 9 and 10: calls. We know everything about eac
Page 11 and 12: 1.4. Company Growth as a Complex Or
Page 13 and 14: 3.5.3. Alternative Explanations for
Page 15 and 16: List of Tables Chapter 1 Table 1.1
Page 17 and 18: List of Figures Chapter 1 Figure 1.
Page 19 and 20: De tweede studie gaat na hoe versch
Page 21 and 22: Executive Summary High-growth compa
Page 23 and 24: development as a whole. The process
Page 25 and 26: The rest of this introduction is st
Page 27: More significantly, finance scholar
Page 31 and 32: 1.2.1. Amount of Finance A first di
Page 33 and 34: Empirical research confirms that co
Page 35 and 36: the static trade-off theory are onl
Page 37 and 38: track record, will heavily rely on
Page 39 and 40: 1.2.4. Dynamics Companies have to m
Page 41 and 42: focusing on the acquisition of vent
Page 43 and 44: Moreover, historical finance decisi
Page 45 and 46: I. TELEOLOGY FIGURE 1.3 Process Mod
Page 47 and 48: 1.4.1. Growth Indicators, Growth Fo
Page 49 and 50: TABLE 1.2 Overlap (%) between Diffe
Page 51 and 52: Study 1: Incremental Finance Decisi
Page 53 and 54: accessible for a limited number of
Page 55 and 56: FIGURE 1.4 Early-Stage Entrepreneur
Page 57 and 58: Overall, a low level of entrepreneu
Page 59 and 60: timeframe of the study 3 . However,
Page 61 and 62: are collect through the financial a
Page 63 and 64: Two drawbacks of the Zephyr databas
Page 65 and 66: accurately remembering finance even
Page 67 and 68: experience of venture capital firms
Page 69 and 70: founding. The increased professiona
Page 71 and 72: investments internally and not to a
Page 73 and 74: contribute to the acquisition of ot
Page 75 and 76: constraints (Himmelberg and Peterse
Page 77 and 78: 1.9. Structure of the Dissertation
Page 79 and 80:
Chandler G.N. and Hanks S.H. (1998)
Page 81 and 82:
Gregory B.T., Rutherford M.W., Oswa
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Manigart S., De Waele K., Wright M.
Page 85 and 86:
Van Auken H. (2001) “Financing sm
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2.1. Abstract This study examines i
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Companies do not continuously raise
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future expansion, financial distres
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Despite contradictory empirical fin
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lowers company value and in turn in
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Hypothesis 2: High-growth companies
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had to be for at least two years am
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2.4.2. Dependent Variables: Finance
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Percentage of firms using: TABLE 2.
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Noteworthy is the high correlation
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Internal finance: TABLE 2.4 Variabl
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Internal finance: (EARNINGS/TOTAL A
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in the probability of raising exter
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Additional analyses on smaller sub-
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Our results are important for acade
Page 117 and 118:
Barclay M.J., Smith Jr., C.W. and M
Page 119 and 120:
Helwege J. and Liang N. (1996) “I
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Ou C. and Haynes G.W. (2006) “Acq
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Chapter 3: Seeking Experienced or L
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(Rindova, Williamson, Petkova and S
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higher growth paths both in employm
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The accumulated experience may not
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offer finance by venture capital in
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around three to five years (Zarutsk
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effects of this potential confound.
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It is conceptually convenient to de
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it indicates how the mean initial s
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The results of the unconditional an
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significant quadratic trend. In thi
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exhibit steeper growth curves both
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obustness of the positive relations
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employment and intangible assets ra
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3.6. Discussion and Conclusion Most
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suggest that venture capital firms
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Baum J.A.C., Calabrese T. and Silve
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Hoang H. and Rothaermel F.T. (2005)
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Peixoto J.L. (1987) “Hierarchical
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Appendix 1: Robustness Check In the
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Chapter 4: Early Differences and Pe
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financial resource mobilization fro
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processes that make it difficult fo
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Biotechnology, 2002). The biotechno
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Table 4.2 differentiates between hi
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to follow-up interviews, (4) financ
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informants had difficulties in accu
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for ventures to replicate the succe
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A good illustration is the differen
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corporate investor related to a big
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In contrast to the image portrayed
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4.5.2. Initial Differences in Growt
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TABLE 4.6 Local Search and the Impa
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investors related to the venture, a
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persist across time and suggest it
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performing biotechnology parent com
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“In our venture capital firm the
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Additionally, our cases illustrate
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(Gargiulo, 1993). He approached not
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that the availability and suitabili
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and Eisenhardt, 2008). In this cont
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ventures are often depicted as pass
Page 207 and 208:
Eisenhardt K.M. (1989b) “Agency t
Page 209 and 210:
Katila R., Rosenberger J.D. and Eis
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Sorenson O. and Stuart T.E. (2001)
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Chapter 5: Limitations, Avenues for
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and despite these low leverage rati
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Additionally, early investors may i
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5.2.1. Entrepreneurs By studying th
Page 221 and 222:
investment strategy. Given the requ
Page 223:
Lerner J. (1999) “The government
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