Financing Unquoted High-Growth Companies: From Extending

ecomes the thesis for the next cycle. Confrontation and conflict between opposing entities are central
within these models and generate a dialectical cycle of change (Van de Ven, 2007).
A key finance theory focusing on the design of alternative governance structures to mitigate agency
conflicts arising from the possible divergence of interest between shareholders, managers and
debtholders, is agency theory (Jensen and Meckling, 1976). Agency theory, for example, presents debt
finance as a governance device useful in reducing conflicts between shareholders and managers
(Jensen, 1986). Agency theory indicates that companies with plenty of internal funds will attract debt
finance as a mechanism to reduce the risk of managers investing in pet projects. This is because the
managers within companies that raise additional debt finance will have to use excessive funds to fulfill
the fixed debt-related payments.
Finally, an evolutionary model of business development and change incorporates both the ideas of
“organizational selection” or the role of the external market environment in determining the survival
and growth of companies (Van de Ven, 2007) and “organizational genetics” or the transmission of
organizational traits through time (Helfat, 1994). The variation-selection-retention framework is a key
element within an evolutionary perspective (Aldrich, 1999). Variation involves the creation of novel
organizations. Selection occurs primarily through competition among companies for scare resources,
such as financial resources. The environment selects those companies that best fit the resource base of
that specific environment. Retention involves the forces including inertia and persistence, which
perpetuate and maintain certain organizational forms. Overall, an evolutionary theory proposes that
early differences, which emerge between companies operating within the same industry, are likely to
persist across time (Nelson and Winter, 1982).
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