Money and Ideas

Four Studies on Finance, Innovation and the Business Life Cycle

  • Prashanth Mahagaonkar

Part of the International Studies in Entrepreneurship book series (ISEN, volume 25)

Table of contents

  1. Front Matter
    Pages 1-13
  2. Prashanth Mahagaonkar
    Pages 1-11
  3. Prashanth Mahagaonkar
    Pages 37-54
  4. Prashanth Mahagaonkar
    Pages 81-97
  5. Back Matter
    Pages 1-9

About this book

Introduction

The lifecycle of businesses is complicated. Right from birth, businesses experience not just opportunities but also many hurdles. The primary obstacle for all businesses is access to capital; drawing from a variety of fields and research perspectives, this book presents four scientific studies that explore the implications of financial constraints at different stages of the firm’s life cycle.

The first study focuses on the financial challenges to the nascent entrepreneur – someone who is planning to, or has just started their business. Do all innovative ideas get financed? No, primarily because their innovativeness cannot be proven. Through a study of 900 nascent entrepreneurs, this chapter demonstrates how the appropriability and feasibility of an innovation can be proven by using patents and prototypes in a signaling fashion.

The second study asks: Do all who patent, do it for money? Who patents apart from nascent entrepreneurs? Outside of the purely commercial arena, using a database of 2500 scientists, this study argues that scientists are driven to patent to gain prestige and reputation, as well as for purely financial motivations, and considers the implications for the strategic function in financial matters that patents play for the firm.

The next chapter looks at the firm life cycle in the second stage. After start-up, they reach the stage of becoming a Small and Medium Enterprise (SME), perhaps employing up to 250 employees. This is the stage when other factors, such a location, become important for SME growth. The same holds true for finance too. Working capital requirements increase, increasing the need for SMEs to gain more finance from outside their firms. Where would they go to? Does geographical dispersion of lending institutions have an effect on financial management of the firms? This study demonstrates that very-local lending institutions, especially credit unions, increase the likelihood that firms will diversify their capital structure. Be it credit rationing or monitoring costs being pushed to the customers, large lending institutions keep away SMEs. During times of crisis, the trend may become stronger, in that local communities play crucial role in SME financing and banks may turn more hostile.

The concluding chapter considers the implications of start-up financing for economic growth and development. Innovation, regional finance and signaling aspects might all work in an economic conditions where there are efficient institutions, including judiciary. Developing economies, however, often lack efficient institutions, and thus innovation might face greater barriers on this angle when coupled with financial constraints. This study, for the first time ever, shows that innovativeness of firms in developing economies, in affected by corruption, usually in the form of bribes. The interesting aspect is that the effect is not always detrimental. Studying 2500 African firms, the author argues that corruption negatively affects product and organizational innovation while it encourages the use of marketing innovation.

To sum up, this book shows that the present crisis may provide innovators an opportunity to present the true value of their innovation to pursue their dreams of starting a firm. Local communities do matter and must not be forgotten as they provide cushion for most of our SMEs. Developing countries must make their institutions efficient to follow the development pattern fuelled by innovation.

Keywords

Bribery Business Business Life Cycle Entrepreneur Entrepreneurs Entrepreneurship Innovation Intellectual Property Nascent Entrepreneurs Patent Small Business Financing Small and Medium-Sized Firms (SMEs) Venture Capital planning

Authors and affiliations

  • Prashanth Mahagaonkar
    • 1
  1. 1.Abt. Entrepreneurship Growth undMPI für ÖkonomikJenaGermany

Bibliographic information

  • DOI https://doi.org/10.1007/978-1-4419-1228-2
  • Copyright Information Springer Science+Business Media, LLC 2010
  • Publisher Name Springer, New York, NY
  • eBook Packages Business and Economics
  • Print ISBN 978-1-4419-1227-5
  • Online ISBN 978-1-4419-1228-2
  • About this book