SUMMARY
The Financial Architecture of Technology-Based Small Firms In Belgium:An Explorative Study
Ant Bozkaya, Solvay Business School/Universite Libre de Bruxelles, Brussels, Belgium
Bruno van Pottelsberghe, Solvay Business School/Universite Libre de Bruxelles, Brussels, Belgium
Principal Topic
This paper summarizes findings of an original survey on the financing of 103 unquoted technology-based small firms (TBSF) in Belgium. Our objective is twofold: Firstly, to examine how various financial arrangements of small entrepreneurial firms are structured and evolve. Secondly, to report the attitudes of Belgian TBSF entrepreneurs in raising early-stage external finance.
Method
We conducted mail surveys and semi-structured face-to-face interviews in Belgium in the fourth -quarter of 2003. We have 103 observations including 25 interviews with entrepreneurs and senior managers. These firms are active and represent aerospace; pharmaceuticals; information and communication technologies; instruments; and other high-technology industries as per the “high-technology” and “medium-high technology” industry classification based on global technology intensity guidelines of OECD. We collected information at 4 different stages of development: “seed;” “start-up;” “early growth;” and “development or expansion” across 10 separate sources of “internal” and “external” finance.
Results and Implications
The evidence accumulated in this paper is consistent with the theoretical arguments that start-up companies face crucial difficulties in accessing external finance at early stages. We find that personal funds of the founders are the primary source of seed financing in 82 percent of the cases. Government subsidies of all kind and commercial bank loans are the primary external source of capital during early stages while business angels and venture capitalists play a greater role in later stages of development. There is also evidence that suggests an evolution of the mix of internal and external sources of capital. We find that the proportion of funds from internal sources declines while the proportion from external debt and equity sources increases with firms’ age. Our findings based on entrepreneurs’ scores in raising external sources of capital signal an equity gap rather than a management gap.
We suggest that personal funds will be the main source of capital at early-stage start-ups. In this context, we recommend to focus on further research on the tax situations of the entrepreneurs themselves along with the tax policies considered to increase private equity investments.
CONTACT: Ant Bozkaya; ULB, Av. F. Roosevelt 50 - CP 140, Brussels 1050, Belgium; Tel/Fax: +32 (0)2 650-6632; Email: abozkaya@ulb.ac.be