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Determinants of Startup Funding: The Interaction between Web Attention and Culture

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... Considering individual factors that determine the operation of an ICT startup, the following important determinants can be distinguished basing on the literature: customer segmentation, cooperation with partners, develop IT services and software, available technologies as well as access to infrastructure and resources (Ren 2020). ...
... Their change may cause a number of consequences in the market operation of an ICT startup. Technology enables start-ups to create new products and services, in order to manage it employees need to acquire new competencies or change the structure or processes in the company (Ren 2020). ...
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The COVID-19 pandemic, often referred to as the 'black swan' phenomenon, is an example of an extreme emergency that leads to environmental, economic and social crisis. Moreover, the coronavirus pandemic has caused millions of health losses and hundreds of thousands of deaths, but has also wreaked irreversible havoc on the global economy, resulting in the need for companies to operate in the global marketplace differently than before. This situation particularly concerns startups that, due to the fact that they are young and often small, are forced to make constant changes to their operations. There is certainly no doubt that the pandemic has accelerated the global trend in the development of ICT technologies, which has a direct effect on the performance of startups that offer innovative ICT solutions. The above characteristic has determined the main purpose of the article which is to diagnose the performance of Polish startups in the ICT industry at the time of COVID-19. The diagnosis is based on literature studies and on the findings of a survey of 109 Polish startups.
... Recent findings from Asia corroborate this, showing that Chinese venture capital investors prefer to invest in locations within China that are geographically closer to them (Huang et al., 2023). Consequently, evidence found by Ren et al. (2020) suggests that cultural differences have an effect on entrepreneurial fundraising. ...
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Entrepreneurship-through-acquisition (ETA) or entrepreneurial buyouts are gaining prominence in international buyout markets, though most transactions and financial investors remain concentrated in North America. We use nascent markets in Asia as our research setting to study how buyout entrepreneurs in such emerging ETA markets adapt their communication strategies to attract resources from international investors. More specifically and responding to calls for more research on entrepreneurial buyouts, we investigate how these entrepreneurs shape their fundraising communication in securing financial capital for search funds, a type of entrepreneurial buyout. Using a qualitative, multiple case study approach and signaling theory, we explore six Asian search funds and conducted three expert interviews with international investors. Our exploratory findings emphasize the importance of tailored communication strategies to bridge understanding gaps and build legitimacy between SF entrepreneurs in nascent markets and international investors. The SF entrepreneurs in our sample use educational strategies to familiarize investors with local business systems, highlighting economic opportunities, professional experiences, and market conditions. A dual strategy emerges: educating local investors on the SF model while addressing international investors’ concerns about reliability and market potential through local endorsements and financial commitments. These efforts mitigate risks and validate opportunities, aligning with research on private equity syndication in cross-border transactions. This is the first study to apply signaling theory to the fundraising processes of search fund entrepreneurs in nascent markets. We, therefore, extend signaling theory to the ETA context, contributing to the entrepreneurial finance research. The research provides practical guidance for buyout entrepreneurs, highlighting the critical role of fundraising communication in building legitimacy and securing investment in nascent ETA markets.
... It also found that start-ups that had financial support from venture capitalists in the past tended to be more predisposed to higher growth in the future. Ren et al (2020) researched the impact that web attention and culture have on the success of the funding process of start-ups. The research found that the culture of the home country of the company has a significant impact on the web attention of the company, but this impact is more significant for collectivistic societies than for individualistic ones. ...
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The aim of this research paper is to make an analysis of the funding options of start-ups. There are many new enterprises that may have brilliant ideas and products that they want to offer, but the process of turning an idea into a product is not easy. There are many challenges that a start-up faces and securing the funds that they need is one of the key challenges. This research paper will focus on how start-ups deal with funding issues, by exploring different funding options that they may choose to use and the ones that they are able to use because of the constraints that may prevent them from choosing the desired funding option. This will also help to see how these financial constraints "force" their decision-making process when it comes to choosing the best funding option. This research is based on secondary research and is exploratory. The research method that is used consists of the exploration of existing information about start-up funding issues and challenges and the interpretation and analysis of the findings generated by it. The results found that start-ups can use different funding options, like angel investors, loans, venture capital, crowdfunding, grants, accelerators, etc. The business idea itself, the competition, the reputation of the founders, and the network of the founder are some key factors that determine the success of the funding process. The funding option that start-ups use can also impact the future of the enterprise, as different funding options can have implications on the capital structure of the company and on the decision-making process.
... As mentioned earlier, one can also examine the cultural aspect, particularly as freelancing is a global phenomenon. Culture has been studied extensively in the literature on crowdfunding and online platforms (Ren et al. 2020). Based on previous research, culture congruence has been described as the convergence of values (e.g., ethics, etc.) between a worker and the employer (Hong and Pavlou 2017;Lehdonvirta 2018;Galperin and Greppi 2017;Kathuria et al. 2021;Edwards and Cable 2009;Meglino and Ravlin 1998;Rokeach 1973;Schwartz 1992). ...
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Sharing economy online labor platforms play a critical role in bringing together freelancers and potential employers. This research is one of the few studies to address how freelancers’ characteristics impact the likelihood of being hired by employers using the theory of person–environment fit as a broad framework. Using Freelancer data, this research investigates if country of residence (of a freelancer and the employer), amount earned, and time since registered on the platform, are associated with the employment decision. The results indicate that country of residence does matter. Freelancers who tend to be from the same country as the employers are more likely to be hired. Likewise, high-income freelancers are less likely to be hired. Further, being longer on the platform influences the association between income level and likelihood of being hired. Greater efforts should be made to eliminate the asymmetric information between freelancers and employers and to provide more opportunities for both parties. The operators of online labor platforms should be encouraged to display information about freelancers that relates to country of origin, along with reviews, ratings, and rates earned in the same skill category, which would have strategic implications for freelance entrepreneurs on how to leverage themselves on a shared-economy-based online labor platform.
... Early studies on the role of attention in crowdfunding show that investor attention, as measured by campaigns' document distinctiveness (Chan, Park, Huang, & Parhankangas, 2020), information content (Thapa, 2020), and social media visibility (Liu, Cheng, & Wang, 2020;Ren, Raghupathi, & Raghupathi, 2020), is an important determinant of campaign success. ...
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Research Summary Digital equity crowdfunding platforms have brought an unprecedented number of international investment opportunities to investors' reach. Although most equity crowdfunding investments are still made domestically, cross‐border investments often have a decisive role in a campaign's success. We therefore ask what drives cross‐border investments and theorize how international investors’ attention directs their investment choices. We leverage unique data and several complementary approaches to examine this question. Our contribution to the equity crowdfunding literature is twofold: (a) we theorize and empirically show how international investor attention affects cross‐border equity crowdfunding investments, and (b) we conduct the first empirical study of the drivers of cross‐border investments in equity crowdfunding. These findings also have implications for new venture internationalization research and the broader literature on investor attention. Managerial Summary Although most equity crowdfunding investments are still made domestically, cross‐border investing is growing, and cross‐border investments are often critical for campaign success. We show that to attract cross‐border investments, it is important for platforms and fundraising companies to capture foreign investors' attention. Platforms and companies can support this through measures such as international digital marketing. In addition, we found that cross‐border investors are more likely to invest in companies with investors' nationalities represented in the team. Companies can thus benefit from nurturing international diversity and marketing in their team members' countries of nationality. Also, companies can seek investments even from distant countries because once investors invest abroad, distance—be it geographic, institutional, cultural, or linguistic—no longer plays a major role in their investment decisions.
... Early studies on the role of attention in crowdfunding show that investor attention, as measured by campaigns' document distinctiveness (Chan, Park, Huang, & Parhankangas, 2020), information content (Thapa, 2020), and social media visibility (Liu, Cheng, & Wang, 2020;Ren, Raghupathi, & Raghupathi, 2020), is an important determinant of campaign success. ...
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This paper examines the role of reputable investors in a crowdfunding market. Using a novel data set on individual investments in a crowdfunding market for mobile applications, we investigate whether early investments serve as signals of quality for later investors, and if the value of these signals differs depending on the identity of early investors. We find that reputable investors — app developer investors and experienced investors — tend to invest early. We also find that while both types of experts are likely to influence later investors, the specifics of their expertise determine their influence. App developer investors tend to have a better knowledge of the product and are found to be more influential for “concept apps” (apps in the pre-release stage), whereas experienced investors — investors with a better knowledge of market performance are found to be more influential for “live apps” (apps that are already being sold in the market). Our findings show that the majority of investors in this market — the crowd — although inexperienced, are rather sophisticated in their ability to identify and exploit nuanced differences between various signals within the same market. In examining the ex-post performance of apps, we find that successful funding in the market is positively associated with ex-post app sales, providing some indication of rational herding among investors. Our study offers new insights for theories of opinion leadership and signaling, and also has practical implications for the design of crowdfunding markets.
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This paper presents an initial empirical examination of which start-up signals will induce small investors to commit financial resources in an equity crowdfunding context. We examine the impact of firms’ financial roadmaps (e.g., preplanned exit strategies such as IPOs or acquisitions), external certification (awards, government grants and patents), internal governance (such as board structure), and risk factors (such as amount of equity offered and the presence of disclaimers) on fundraising success. Our data highlight the importance of financial roadmaps and risk factors, as well as internal governance, for successful equity crowdfunding. External certification, by contrast, has little or no impact on success. We also discuss the implications for successful policy design.
Article
This article proposes that the attention allocated by venture capitalists to portfolio companies impacts their performance. The article develops arguments for optimal portfolio size and for the moderating roles of syndication frequency and role. The hypotheses receive support from analyses employing longitudinal data of the leading U.S. venture capital firms. Our results indicate the value of venture capitalist involvement and give guidance for its optimal allocation and syndication.
Article
Using a panel of U.S. metropolitan areas, we find that increases in the supply of venture capital positively affect firm starts, employment, and aggregate income. Our results remain robust to a variety of specifications, including ones that address endogeneity. The estimated magnitudes imply that venture capital stimulates the creation of more firms than it funds, which appears consistent with two mechanisms: First, would-be entrepreneurs anticipating financing needs more likely start firms when the supply of capital expands. Second, funded companies may transfer know-how to their employees, thereby enabling spin-offs, and may encourage others to become entrepreneurs through demonstration effects. (c)© 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Article
What decision criteria do venture capitalists (VCs) use to make their investment decisions? This question has received much attention within entrepreneurship literature (i.e.,Wells 1974; Poindexter 1976; Tyebjee and Bruno 1984; MacMillan, Seigel, and Subba Narasimha 1985; MacMillan, Zeman, and Subba Narasimha 1987; Robinson 1987; Timmons et al. 1987; Sandberg, Schweiger, and Hofer 1988; Hall and Hofer 1993; Zacharakis and Meyer 1995) for a number of reasons. First, VC-backed ventures achieve a higher survival rate than non-VC-backed businesses (Kunkel and Hofer 1990; Sandberg 1986; Timmons 1994). Second, a better understanding of the decision process may lead to even better survival rates. Finally, entrepreneurs seeking venture funding benefit if they understand what factors are most important to the VC.
Article
This paper models firms’ choices between alternative means of presenting information, and the effects of different presentations on market prices when investors have limited attention and processing power. In a market equilibrium with partially attentive investors, we examine the effects of alternative: levels of discretion in pro forma earnings disclosure, methods of accounting for employee option compensation, and degrees of aggregation in reporting. We derive empirical implications relating pro forma adjustments, option compensation, the growth, persistence, and informativeness of earnings, short-run managerial incentives, and other firm characteristics to stock price reactions, misvaluation, long-run abnormal returns, and corporate decisions.
Article
This study examines nascent entrepreneurship by comparing individuals engaged in nascent activities (n=380) with a control group (n=608), after screening a sample from the general population (n=30,427). The study then follows the developmental process of nascent entrepreneurs for 18 months. Bridging and bonding social capital, consisting of both strong and weak ties, was a robust predictor for nascent entrepreneurs, as well as for advancing through the start-up process. With regard to outcomes like first sale or showing a profit, only one aspect of social capital, viz. being a member of a business network, had a statistically significant positive effect. The study supports human capital in predicting entry into nascent entrepreneurship, but only weakly for carrying the start-up process towards successful completion.
Article
A long-standing problem for most business start-ups is acquiring external equity during the first year of operations. In explaining the financing decisions of business start-ups, Meyer’s (1984) pecking order theory serves as a logical working hypothesis. Treating the pecking order to be the resolution to an information problem about the potential profitability of a business startup, this paper analyzes the determinants of obtaining external equity. Special consideration is given to the role of entrepreneurial experience. The results suggest that entrepreneurial experience impacts the extent to which key factors affect a start-up’s ability to obtain external equity.
Article
Venture capital investment decision-making can be modeled as a six-stage process that employs fifteen criteria and produces both supply- and demand-side benefits to the market.
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