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

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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.

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Notes

  1. We wish to thank Anna Husman and Lotta Rahm for their research assistance, especially in the area of data collection.

  2. The random error in the ordered PROBIT regression is assumed to follow a normal distribution.

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Acknowledgment

We would like to acknowledge the help of Lotta Rahm and Ana Husman in collecting the data.

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Authors and Affiliations

  1. College of Business Administration, University of Texas Pan American, 1201 W. University Drive, Edinburg, TX, 78539, USA

    Jan Smolarski

  2. School of Business Administration, Stockholm University, SE-106 91, Stockholm, Sweden

    Can Kut

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  1. Jan Smolarski
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  2. Can Kut
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Correspondence to Jan Smolarski.

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Smolarski, J., Kut, C. The impact of venture capital financing method on SME performance and internationalization. Int Entrep Manag J 7, 39–55 (2011). https://doi.org/10.1007/s11365-009-0128-1

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  • DOI: https://doi.org/10.1007/s11365-009-0128-1

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