The Life Cycle of New Ventures

The Life Cycle of New Ventures

Emergence, Newness and Growth

Edited by Candida G. Brush, Lars Kolvereid, L. Øystein Widding and Roger Sørheim

The contributors to this book provide a cross-national comparison of venture emergence, newness and growth. Their chapters examine the influences of cultural, social and economic factors on venture development, compare the approaches of entrepreneurs who move from idea to emerging organization, and investigate acquisition and development of resources in growth and performance.

Chapter 12: New Business Founders: Perceptions About and the Use of External Funding

Roger Sørheim and Espen J. Isaksen

Subjects: business and management, entrepreneurship, international business


Roger Sørheim and Espen J. Isaksen INTRODUCTION Throughout the last three decades there have been a number of studies indicating that small and medium-sized enterprises (SMEs) are the most important contributors of new jobs in the private sector (Birch, 1979, 1987; Davidsson et al., 1994; Storey, 1994; Cassar, 2004). This means that SMEs play a key role as a vehicle for economic growth and wealth creation. However, not all SMEs are creators of jobs; the vast majority of them (more than 90 percent) remain in the lifestyle category (Lumme et al., 1998; Van Osnabrugge and Robinson, 2000). Moreover, how business start-ups are financed is one the fundamental issues of enterprise research as financial capital is a necessity for new firms who want to compete in the marketplace (Cassar, 2004). Moreover, financial constraints are often claimed to be the reason why only a small part of new small businesses actually grow (Greene and Brown, 1997; Cassar, 2004). The rationale for this reasoning is that external financiers (that is, banks, informal investors and venture capital firms) are reluctant to finance new small firms because of the risk involved (related to information asymmetries and lack of track record) (Binks, 1996; Winborg, 2000; Sørheim, 2003). This implies a supply side view of small business finance, focusing on how external financiers evaluate new firms. This rationale has been questioned over the last decade: (1) by focusing on the heterogeneity among small firms, that many firms prefer to remain ‘lifestyle’ firms and (2) that...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information