Multistage Selection and the Financing of New Ventures

Considering significant reasons why some newventures are more likely than others to receive capital from external sources,it isargued that new venture finance follows a pattern of multistage selection over time. Using a sample of the life stories of 221 of new Swedish ventures in 1998, the venture financing process is analyzed from the perspectives of the business founder and of the financier. Founders seek external funding based on their perceptions about business opportunity, including anticipated market growth, market competition,employment growth, and price competitiveness. Financiers, on the other hand, make their funding decisions based on objective verifiable indicators of venture development. Other control covariates of the study include start-up experience, industry experience, completed business plan, venture age, industry sales growth, number of firms in an industry, and average firm age in theindustry. The study offers several contributions by: (1) indicating that the financingof new ventures follows an evolutionary selection process; (2) examining empirically the role of founders in the process of new venture finance; (3) providing evidence about new venture finance that can be generalized to thetypical new venture; and (4) overcoming the problems of selection bias. (CBS)