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Funding Innovation
Lilly Epple, Matthias Fiedler und Sebastian Würth
19. Nov. 2007
TechnologieInnovationsmanagement
Thesis
The financial market failure when it comes to
small businesses is remedied by a socially and
internally oriented resource acquisition strategy.
19. Nov. 2007
TechnologieInnovationsmanagement
.....or why Jeff Bezos is lucky to have parents.
19. Nov. 2007
TechnologieInnovationsmanagement
Why is there a financial market
failure?
l The neoclassical model
l In the model credit rationing would not prevail in
the long run
19. Nov. 2007
TechnologieInnovationsmanagement
l
What causes the problems of
small businesses to raise
funds?
Size matters
l Small businesses can not provide the required
collaterals
l Imperfect competition
l Focus on funding low risk projects of larger companies
l Assymetric information
l Small businesses are charged relatively higher risk
premiums
19. Nov. 2007
TechnologieInnovationsmanagement
Adverse selection
l Why are some borrowers denied loans even if
they were willing to pay more than the market
interest rate or put up more collaterals than
required?
19. Nov. 2007
TechnologieInnovationsmanagement
Methods
l First empirical study of 900 small businesses in
Sweden
l Two kinds of data analysis:


Factor analysis
Cluster analysis
l Response rate of 30% only/ average employees
of businesses examined: 5 /5,3 mio SEK
l 66% of the managers rated the chance of
becoming financial support from banks rather
high
19. Nov. 2007
TechnologieInnovationsmanagement
Use of Financial Bootstrapping
Methods
(1) buy used instead of new equipment
(2) search for best conditions with suppliers
(3) retain manager‘s salary
(4) delay payments to suppliers
(5) use of routines for speeding up invoice
(6) Borrow equipment from other businesses
19. Nov. 2007
TechnologieInnovationsmanagement
Groups of Financial Bootstrapping
Methods
l
Results from factor analysis
(1) manager‘s / owner‘s/ relatives resources
are being used
(2) minimization of accounts receivable
(3) joint utilization
(4) delaying payments
(5) minimization of capital investment stock
(6) public support
19. Nov. 2007
TechnologieInnovationsmanagement
Groups of Financial Bootstrappers
l Delaying Bootstrapper

Low profit/need for additional finance/no longterm bank finance
l Private owner-financed bootstrapper

Low profit/immature business/need for
additional finance/no long-term bank finance
l Minimizing bootstrapper

Low profit/expanding business/NO need for
additional finance/long-term bank finance
19. Nov. 2007
TechnologieInnovationsmanagement
Groups of Financial Bootstrappers
l Relationship-oriented bootstrapper

High profit/mature business/ no need for
additional finance/long-term bank finance
l Subsidy-oriented bootstrapper

Low profit/expanding business/need for
additional finance/long-term bank finance
l Why to create groups
 classification, meet the need
19. Nov. 2007
TechnologieInnovationsmanagement
Thank you…
… for your attention!
19. Nov. 2007
TechnologieInnovationsmanagement
Sources
l Klodt, H.(1995). Grundlagen der Forschungs- und
Technologiepolitik. München: Vahlen
l Stiglitz, J. Weiss, A. (1981). Credit rationing in Markets
with imperfect Information. American Economic Review,
71, 3. pp.393-410
l Winborg, J. Landström (2000). Financial Bootstrapping
in Small Businesses: Examining Small Business
Managers‘ Resource Acquisition Behaviors. Journal of
Business Venturing, 16, pp.235-254
19. Nov. 2007
TechnologieInnovationsmanagement