Financing High-tech Entrepreneurship

Technology entrepreneurship is considered to be the driver of future economic development and vital to its long-run competitiveness. New technology start-ups can have positive effects on employment and rejuvenate industries with disruptive technologies (Christensen and Bower, 1996; Acs, 2008), thus securing and creating an economy's wealth. However, the survival rate of technology-intensive start-ups is the lowest among new ventures in general (Song et al., 2008). Consequently, research has started to investigate factors that lead to the success and failure of these ventures. Among the resources needed, sufficient and appropriate financial resources are of particular importance and have a positive influence on new technology venture success (Song et al., 2008). Capital decisions and the use of debt and equity at start-up have been shown to have important implications for the operations of the new business, risk of failure, firm performance, and the potential of the business to grow (Cassar, 2004). Besides the normal financial requirements that any start-up faces, a new technology based venture needs additional funds for its R&D in order to develop new products and markets. At this, financial resources represent a hygiene factor: even though more financial resources may improve new venture performance, not all technology firms have unconstraint access to financial resources. Technology start-ups come along with particular characteristics (i.e., higher information asymmetries, higher project risks or lower collaterals) that exacerbate their access to external financial sources. Financial constraints and funding gaps arising from capital market imperfections have thus more likely an impact on start-ups in the high-tech sector (Carpenter and Petersen, 2002).
Compared to the vast amount of empirical studies on capital structure policies in large and medium sized enterprises, only limited research has been conducted on capital structure decision in new ventures or new technology start-ups. At this, the existing studies on financing technology entrepreneurship are largely descriptive in nature and were not based on theoretical arguments being well established in traditional finance research (e.g., Hogan and Hutson, 2005a). Furthermore, The majority of studies have been of limited geographic (i.e., city or regional cluster) or industry focus (i.e., IT) which limits the generalizability and applicability of their findings (e.g., Harrison et al., 2004; Willoughby, 2008).
This research project addresses the important need of further research in the area of financing technology entrepreneurship by using multiple research techniques and applying traditional capital structure theories and entrepreneurship theories to a unique panel data set of German start-ups.