Entrepreneurial Processes in a Changing Economy

Entrepreneurial Processes in a Changing Economy

Frontiers in European Entrepreneurship Research

Frontiers in European Entrepreneurship series

Edited by Friederike Welter, David Smallbone and Anita Van Gils

The contributors take a closer look at what constitutes entrepreneurial processes; how entrepreneurs develop their businesses and access critical resources in times of crisis; and which roles knowledge and innovation play in continuous venture development. The chapters included in this volume give a flavour of the themes and approaches featuring in contemporary entrepreneurship and small business research in Europe.

Chapter 6: The Use of Financial Bootstrapping in Small and Medium-sized Ventures and the Impact on Venture Growth

Eddy Laveren, David Helleboogh and Nadine Lybaert

Subjects: business and management, entrepreneurship

Extract

Eddy Laveren, David Helleboogh and Nadine Lybaert 1. INTRODUCTION It is well documented that the availability of financial resources is one of the challenges of new venture creation (Cassar 2004; Steier 2003). It is difficult and expensive for new ventures to find outside capital from banks and investors because of the high information asymmetries (Huyghebaert and Van de Gucht 2007; Parker 2002), the absence of a financial or operating history (Huyghebaert and Van de Gucht 2007), the lack of collateral (Parker 2002), and the higher ex ante failure risk compared to existing ventures (Chaganti et al. 1995; Huyghebaert and Van de Gucht 2007). This could lead to a lack of finance which may hamper the venture’s growth. In order to overcome these challenges, it is necessary and desirable that founders are aware of methods that minimize the need for financing by securing resources at little or no cost, and by creatively acquiring resources without using bank financing or equity. This collective set of methods is called financial bootstrapping and refers to financing methods other than traditional debt and equity financing from financial institutions and investors (Bhide 1992; Carter and Van Auken 2005; Freear et al. 1995; Landström and Winborg 1995). Despite the fact that the use of some bootstrap methods in actual practice is widespread (Van Auken 2005; Winborg and Landström 2001), there is a lack of research focusing on developing an understanding of financial bootstrapping use within new ventures (Brophy 1997; Ebben and Johnson 2006; Lahm and...

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