The Entrepreneur's Hunt for Smart Money: A qualitative study of the entrepreneur's perspective on the investment process
Abstract: Start-up companies, and subsequently the entrepreneurs, have an increasingly important role in today's global economy. Besides contributing to economic growth, they also have a crucial impact on the society in promoting innovation and productivity since their businesses contribute to technological changes and innovative solutions. However, to be able to take the business from idea to an established and commercialized business, entrepreneurs need financial capital and difficulties in funding the business is one of the most common reasons for a start-up to fail. Since growing the business often requires a large amount of capital, the entrepreneurs need to establish relationships with multiple investors to survive this challenge. The relationships between the entrepreneurs and their investors are of crucial importance for the entire investment process and for the future success of the company. Due to the difficulties for entrepreneurs to fund their businesses and its importance for the society, the purpose of this study is to investigate how entrepreneurs with growth ambitions perceive the investment process in the expansion phase. To do this, a qualitative multiple-case study has been pursued using an abductive approach and semi-structured interviews were conducted with a total of 22 entrepreneurs. The businesses participating in the study are active in industries with varying research and development needs, which affects the need for financial capital. The empirical findings have been analysed through a consolidated theoretical framework consisting of three identified stages in the investment process and Shepherd and Zacharakis (2001) model of confidence in partner co-operation. The findings show that throughout the investment process, the factors of trust building are used to different extents in different stages. In the early stages of the investment process entrepreneurs are mainly focusing on signalling commitment and consistency as well as obtaining a good entrepreneur-investor fit, while they in the later stages also focus on ensuring fairness in the relationships and having an open and frequent communication with their investors. Furthermore, the result shows that there is a contradiction in the behaviours of the entrepreneurs. While they spend a lot of time on finding investors with competence that can help the businesses succeed, they in later stages of the investment process do not utilize the competence to a full extent.
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