The impact of venture capital financing method on SME performance and internationalization

Abstract

One of the basic premises of venture capital is leverage, which often means adding money and other resources to speed up growth. As a result, small-to medium-sized venture funded firms are expected to show significant growth at an early stage. Our research examines how equity based-venture funding methods affect SME performance and internationalization. We divide venture capital financing into several categories: incremental financing where firms receive their venture capital funding in portions, lump-sum funding where firms receive their funding in one lump-sum, syndication where two or more external investors participate in a single financing round and non-syndicated financing where one investor participates in a single financing round. The results show that type of equity-based venture capital financing affect performance and internationalization. Annual sales growth rate and annual turnover are used as proxies for performance. Export ratio is used as a proxy for internationalization. Staged financing and financing through a syndicate has a positive effect on performance and internationalization when used separately. We observe a negative effect when syndication and staged financing are used in combination.

Early internationalization patterns and export market persistence: a pseudo-panel data analysis

“…A new firms' international failure not only translates in the loss of its international investments, it can often have negative repercussions on the firm's domestic activities (Amiti and Weinstein 2011). For instance, heavy external finance of international operations often means that unsuccessful exporters will consequently face financial constraints for domestic operations (Smolarski and Kut 2011). This is compounded by the fact that small and novice exporters tend to gain smaller export revenues (Rauch and Watson 2003), which rarely cover the costs of initiating international trade operations in the short-term (Das et al 2007).…”

How to create international business competences and their impact on firm performance

“…In organisations that encourage reflection, analysis and change in order to continuously improve, new ideas are valued regardless of the hierarchical level of the human capital that formulates them (Smolarski and Kut, 2011). Besides, if the organisation promotes continuous learning and the acquisition of new abilities through staff turnover or introducing improvements in employee's professional lives, it is also encouraging a culture focused on innovation and learning (Cegarra-Navarro et al, 2011).…”

Venture Capital Best Practice Strategies To Reduce Economic Uncertainty In Biofuel Investing

“…Staging is a common practice and an vital activity to reduce uncertainty by limiting negative financial exposure in subsequent staging rounds, reducing the effects of asymmetry of information, and preventing the funding of low return on investment projects (Dahiya & Ray, 2012;Geronikolaou & Papachristou, 2011;Hsu, 2010;Smolarski & Kut, 2011). IVC firms face maximum risk in the staging process during the initial round of financing (Smolarski & Kut, 2011).…”

“…IVC firms face maximum risk in the staging process during the initial round of financing (Smolarski & Kut, 2011). By staging, the IVC firm invests capital and provides additional value-added services to the portfolio firm (Smolarski & Kut, 2011).…”

“…IVC firms face maximum risk in the staging process during the initial round of financing (Smolarski & Kut, 2011). By staging, the IVC firm invests capital and provides additional value-added services to the portfolio firm (Smolarski & Kut, 2011). Wiltbank, Read, Dew, and Sarasvathy (2009) and Dahiya and Ray (2012) indicated that staging mitigates moral hazard by avoiding the introduction of significant portions of funding at the beginning of a project.…”