Time to take stock : external capital and subsequent performance of academic spin-offs – participants of FORNY program

Abstract

Creating new ventures lies in the foundations of entrepreneurship. However, young firms are known to face many constraints during their early stages of development and formation. “Financial gap”, or the lack of the financing resources, is considered to be the most important of them. These firms seek financing from different sources. It is believed that the choice between them can influence the subsequent performance of the organizations. I am exploring this issue by investigating the external financing attracted and the further performance of the 72 Norwegian academic spin-offs, participants of the FORNY program. The results clearly indicate that external equity financing increases the chance of survival while debt financing decreases it. These findings do not support the traditional pecking order theory of Myers and Majluf (1984) but rather the reverse pecking order of Garmaise (2001). The presence of venture capital (VC) as shareholders and on the board of directors significantly helps the organizations to grow sales-wise, something which is discussed in light of agency theory of Eisenhardt (1989). Limitations, implications and propositions for future research are highlighted.