Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Lack of capital not a 'death sentence' for start-ups

05.06.2009
A new study from North Carolina State University is turning the conventional wisdom about technology start-up companies on its head, showing that ventures with moderate levels of undercapitalization can still be successful and that a great management team is not more important than a top-notch technology product when it comes to securing sufficient amounts of capital.

"Our research shows that undercapitalization is not a death sentence for start-up ventures," says Dr. David Townsend, an assistant professor of management, innovation and entrepreneurship at NC State who co-authored the study. "There are things a venture can do to survive and succeed." Basically, Townsend says, start-ups that fall short of their fund-raising goals can take steps to minimize their cash outflows in order to stay viable.

Undercapitalized ventures "need to engage in management strategies focused on reducing their costs. For example, outsourcing certain development tasks and accounting responsibilities or exchanging services with other companies – saying we'll build your Web site in exchange for a year's worth of accounting services, etc.," Townsend says.

The study also found that there is little evidence to support the long-standing tenet that a great management team is the most important part of a venture company when it comes to securing investment in a start-up. The study shows that a venture with an "A," or top notch, management team and an A technology is likely to meet its capitalization goal. But the researchers were surprised to find that the combination of a "B," or less than ideal, management team with a B technology was also quite successful in meeting capitalization goals. Ventures that had an A management team but a B technology, or vice versa, were usually underfunded.

Townsend explains that B management teams with B technologies are probably more successful at meeting their capitalization goals because they are aware of their shortcomings, and modify their capitalization targets accordingly. For example, these B teams may minimize management salaries or restrict their marketing budgets.

Similarly, Townsend says the evidence implies that A management teams with B technologies, or vice versa, often fall short of their capitalization targets because they have not modified their fund-raising goals – and as a result investors don't buy in at a sufficient level to fully fund the venture's intended strategies.

The study, "Resource Complementarities, Trade-Offs, and Undercapitalization in Technology-Based Ventures: An Empirical Analysis," was co-authored by Townsend and Dr. Lowell W. Busenitz of the University of Oklahoma. The study will be presented June 5 at the Babson College Entrepreneurship Research Conference in Boston and at the Brown International Advanced Research Institutes in Providence, R.I., on June 18.

The research was supported by North Carolina State University, The University of Oklahoma, and i2E – a non-profit corporation focused on wealth creation by growing the technology-based entrepreneurial economy in Oklahoma.

Matt Shipman | EurekAlert!
Further information:
http://www.ncsu.edu

More articles from Business and Finance:

nachricht Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik

nachricht RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Why we need erasable MRI scans

New technology could allow an MRI contrast agent to 'blink off,' helping doctors diagnose disease

Magnetic resonance imaging, or MRI, is a widely used medical tool for taking pictures of the insides of our body. One way to make MRI scans easier to read is...

Im Focus: BAM@Hannover Messe: innovative 3D printing method for space flight

At the Hannover Messe 2018, the Bundesanstalt für Materialforschung und-prüfung (BAM) will show how, in the future, astronauts could produce their own tools or spare parts in zero gravity using 3D printing. This will reduce, weight and transport costs for space missions. Visitors can experience the innovative additive manufacturing process live at the fair.

Powder-based additive manufacturing in zero gravity is the name of the project in which a component is produced by applying metallic powder layers and then...

Im Focus: Molecules Brilliantly Illuminated

Physicists at the Laboratory for Attosecond Physics, which is jointly run by Ludwig-Maximilians-Universität and the Max Planck Institute of Quantum Optics, have developed a high-power laser system that generates ultrashort pulses of light covering a large share of the mid-infrared spectrum. The researchers envisage a wide range of applications for the technology – in the early diagnosis of cancer, for instance.

Molecules are the building blocks of life. Like all other organisms, we are made of them. They control our biorhythm, and they can also reflect our state of...

Im Focus: Spider silk key to new bone-fixing composite

University of Connecticut researchers have created a biodegradable composite made of silk fibers that can be used to repair broken load-bearing bones without the complications sometimes presented by other materials.

Repairing major load-bearing bones such as those in the leg can be a long and uncomfortable process.

Im Focus: Writing and deleting magnets with lasers

Study published in the journal ACS Applied Materials & Interfaces is the outcome of an international effort that included teams from Dresden and Berlin in Germany, and the US.

Scientists at the Helmholtz-Zentrum Dresden-Rossendorf (HZDR) together with colleagues from the Helmholtz-Zentrum Berlin (HZB) and the University of Virginia...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

Invitation to the upcoming "Current Topics in Bioinformatics: Big Data in Genomics and Medicine"

13.04.2018 | Event News

Unique scope of UV LED technologies and applications presented in Berlin: ICULTA-2018

12.04.2018 | Event News

IWOLIA: A conference bringing together German Industrie 4.0 and French Industrie du Futur

09.04.2018 | Event News

 
Latest News

World's smallest optical implantable biodevice

26.04.2018 | Power and Electrical Engineering

Molecular evolution: How the building blocks of life may form in space

26.04.2018 | Life Sciences

First Li-Fi-product with technology from Fraunhofer HHI launched in Japan

26.04.2018 | Power and Electrical Engineering

VideoLinks
Science & Research
Overview of more VideoLinks >>>