Financing Unquoted High-Growth Companies: From Extending

Although the financial growth cycle paradigm is generally accepted in the finance literature, it has not
been subject to much empirical scrutiny (Gregory, Rutherford, Oswald, and Gardiner, 2005).
Moreover, the financial growth cycle does not address more fine-grained questions with respect to the
source of finance. For example, which particular source of finance are companies more likely to
target? Are companies more likely to target venture capital investor A or venture capital investor B?
This is a problem characterizing most finance theories given the central role of rationality and investor
homogeneity in mainstream finance theories (Subrahmanyam, 2007).
Eckhardt, Shane and Delmar (2006), for example, consider both the demand and the supply side of the
market and propose that the finance process is a two-stage process. First, companies decide whether to
raise external finance or not based on the quality perception of their venture. Second, investors select
from the pool of companies that are willing to raise external finance based on their own quality
assessment. Implicit in these models is that all companies with external finance needs target all
possible external investors and/or investors screen all entrepreneurial companies with external finance
needs. Furthermore, entrepreneurs are proposed to rank order all finance offers received from investors
according to a particular criterion. Companies are expected to rank order finance offers based on the
price offered as indicated by traditional finance theory or the reputation of the investor as
demonstrated more recently by Hsu (2004). This results a very deterministic view on financial
decision-making.
In the second study “Seeking Experienced or Legitimate Partners? A Longitudinal Study on the Impact
of Venture Capital Firm Heterogeneity on Portfolio Company Growth” I offer new evidence on the
importance for the type of investor within a particular subset of investors, namely venture capital
investors, on the growth of portfolio companies. Moreover, the third study “Early Differences and
Persistence in the Entrepreneurial Finance Process: Evidence from High- and Low-Growth
Biotechnology Startups” offers additional insights into how entrepreneurs structure their search for
early finance thereby contributing to a general gap in our understanding.
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