Entrepreneurs in High Technology: Lessons from MIT and Beyond

By Edward B. Roberts | Go to book overview

CHAPTER 7
Finding Additional Financing

While beginning to evolve and grow, the postformation technological firm develops increased needs for funding. This chapter examines the subsequent financing of technical companies, including the sources and amounts raised during second and third rounds. It covers the entrepreneurs' search for additional capital and those pathways that are most productive. Additional financing increasingly depends on outside investors and, consequently, entrepreneurs frequently prepare business plans, whose characteristic deficiencies are assessed here. Finally, due to their greater importance for later stage financing, venture capitalists' decision making in funding high-technology firms are evaluated. The decision to go public, the process, and the consequences, are treated in Chapter 8.


Secondary and Tertiary Financing

Chapter 5 provides a picture of the evolution of technological firms through multiple stages of growth and development, with the attendant changes in capital requirements. It also reviews the various sources of company financing, from personal funds all the way to public stock offerings, and puts into perspective the likely differences in use of these sources during a company's life. As shown, most companies find that their initial funds are insufficient to support their operations and/or their growth during the early years. Typically 60 percent of the companies in the samples raise capital a second time (secondary financing) and about 30 percent obtain funds a third time (tertiary financing). This is in a sense fortunate, since most investors strongly prefer those later stage investment opportunities ( Ruhnka and Young, 1987). Not only does 75 percent of the venture capital money go into second round and later investments ( Venture, 1989), but even informal investors place over 50 percent of their funds in post-start-up situations in both New England and California ( Wetzel, 1983, p. 26; Tynes and Krasner, 1983, p. 351) and slightly less in the Great Lakes region ( Aram, 1989, p. 338).

While the first funding of a company tends to be memorable to its

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Entrepreneurs in High Technology: Lessons from MIT and Beyond
Table of contents

Table of contents

  • Title Page iii
  • Preface vii
  • Acknowledgments ix
  • Contents xi
  • Chapter 1 High-Technology Entrepreneurs 3
  • References 30
  • Chapter 2 an Environment for Entrepreneurs 31
  • References 45
  • Chapter 3 the Makings of an Entrepreneur 47
  • Summary and Implications 94
  • Notes 96
  • References 97
  • Chapter 4 the Technological Base of the New Enterprise 100
  • Summary and Implications 121
  • References 123
  • Chapter 5 the Financial Base of the New Enterprise 124
  • Summary and Implications 156
  • Chapter 6 Evolving Toward Product and Market-Orientation 160
  • Notes 186
  • References 186
  • Chapter 7 Finding Additional Financing 188
  • References 215
  • Chapter 8 Going Public 217
  • Summary and Implications: Sizzle or Steak 242
  • References 244
  • Chapter 9 Survival Versus Success 245
  • Chapter 10 Product Strategy and Corporate Success 281
  • Notes 306
  • References 308
  • Chapter 11 Super-Success 309
  • Notes 336
  • References 338
  • Chapter 12 Technological Entrepreneurship: Birth, Growth, and Success 339
  • References 358
  • Appendix a Quarter Century of Research 359
  • References 375
  • Index of Founders and Firms 377
  • Subject Index 381
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