How do startups prevent encountering the funding gap?

University essay from Lunds universitet/Företagsekonomiska institutionen

Abstract: Purpose – This paper aims to address the issue with securing finance in the funding gap that has negative effects on the entrepreneurial eco system as a whole since many business ideas never gets commercialized into the market. Furthermore, we seek to contribute to existing research and increase the chances for the entrepreneur to succeed in terms of commercializing their service or product. Thus, the purpose of this study is to gain knowledge in what preventative internal actions the entrepreneurs behind a startup can take in order not to encounter the funding gap. Methodology – This multi-case study follows a qualitative research approach where the empirical data was obtained through eight semi-structured interviews with seven tech companies based in Sweden and one in U.S.A. Through an inductive approach we have let the theory emerge from our empirical data. Findings – In line with the theory, we concluded that entrepreneurs can prevent facing the early-stage funding gap on an entrepreneurial level by adopting a proactive mindset, actively and persistently searching for funding, taking a risk, using bootstrapping, and on organizational level by building highly competent team and strong external relationships. Our findings also identified new elements, indicating that adopting a strong business model with a clear value proposition and education on running the business will help prevent the gap. Research limitations – This study is based on tech startups mainly based in Sweden which limits general applicability of the findings to other industries, contexts and countries. The reader should also bear in mind that the study does not address other contextual factors such as gender. Therefore, the results of this study should be viewed within its limitations. Practical implications – This study suggests several practical advices for entrepreneurs trying to prevent encountering the funding gap and reach commercialization stage. Some of the primary contributing implications indicate that high reputation as an entrepreneur, knowledge about raising funding, being aware and actively searching for funding, utilizing bootstrap techniques, and engaging with external support organizations is crucial to increase the chance of obtaining external funding.

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