Financing young entrepreneurs

Espen J. IsaksenBodø Graduate School of

Business

Sources of capital for entrepreneurs

• Entrepreneur’s own capital• Informal investors

– Family/friends• Business angels• Seed funds• Venture capital• Public funding • Banks

Demand-side

• The demand for financial capital may be related to several aspects including:– The business idea– The stage of the business (start-up, growth etc.)

– Entrepreneurs’ growth ambitions– Entrepreneurs’ control aversion

Some aspects relating to the Norwegian context

• According to the Norwegian Global Entrepreneurship Monitor (GEM) 2009 report:– Entrepreneurship in Norway is, in general, due to opportunity rather than to necessity.

– Findings based on responses from Norwegian experts indicate that access to capital is a problem for Norwegian new businesses.

Survey: Norwegian entrepreneurs• Data relating to a sample of new

independent businesses surveyed over two points in time.– Postal survey May/June 2002. New entries in a

Norwegian business register.– Telephone interviews relating to outcomes (sales

turnover and employment) took place approx. 19 months after the initial survey.

– Compare entrepreneurs < 36 years with the group of

entrepreneurs older than 35 years

Results relating to financing

• The results indicate that young entrepreneurs report to have invested less equity compared to the group of older entrepreneurs (at the time of business registration). No statistically significant difference was detected with regard to loans.

• Also, when equity and loans are added, young entrepreneurs, compared with group of older entrepreneurs, start businesses with less financial capital.

Results relating to financing (continued)• Statements included in the

questionnaire: (Scale 1=strongly disagree, 4=neither degree or disagree, and 7=strongly agree)– It is easy to get an overview of suppliers of equity: Mean score young entrepreneurs 3.4, statistically significant difference compared with the group of older entrepreneurs (mean score 3.7)

– It is easy to get an overview of public funding arrangements. Mean score young entrepreneurs 3.1, other group 3.3.

• Is there a need for better information especially with respect to young entrepreneurs?

The role of advice in the business start-up process

• Results indicate that advice from banks is particularly valuable for young new business founders (relatively strong correlation with subsequent performance in terms of sales turnover and employment)

• Results also indicate that there is diminishing returns of advice on performance.

Advice vs. Employment

0

1

2

3

4

5

6

7

8

0 1 2 3 4 5 6 7 8 9 10 11 12

Number of Sources of Advice

Employment