Frontiers of Entrepreneurship Research
1997 Edition

SUMMARIES

Return to 1997 Topical Index 

Order hard copy editions of Frontiers of Entrepreneurship Research by mail 
 

NEW FIRM CHARACTERISTICS AND THE MARKET FOR ENTREPRENEURIAL CAPITAL

J. Howard Finch
Thomas H. Payne

School of Business Administration
University of Tennessee
Chattanooga, TN  37403

Telephone: 423-755-4313
Fax: 423-755-5255

Principal Topics

New firms at various stages of development in the southeast Tennessee region are surveyed to determine their sources and uses of capital.  Changes in the type of capital raised during the early stages of business development are addressed as are differences across business types.  Similarly, prospective changes in the uses of capital as the firm matures are analyzed. Finally, an assessment is made of the overall accuracy of entrepreneurs' initial estimates of working capital needs.

Method

New business start-ups identified by the  Chattanooga Times  during 1996 are surveyed (n=815).  These companies represented a cross section of industries and business activities.  Changes in the capital needs across firms are analyzed based on initial, additional, and prospective capital sources for the new businesses.  Relationships between sources and uses of funds are investigated.  Associations among line of business, entrepreneur experience, education level, and working capital estimates.

Major Findings and Implications

By far the greatest source of  start-up funding was personal savings.  Bank loans and credit card advances were also used extensively.  An interesting result from the preliminary data is that the majority of  additional funds invested since inception of the business come from internally generated sources.  Additional funds also come from personal savings.  Responses received to date indicate that over 50 percent of initial funding is dedicated to working capital needs.  Perhaps surprisingly, "no" responses outnumber "yes" responses by more two to one regarding whether initial working capital needs were underestimated.
 

Return to 1997 Topical Index

© 1997 Babson College All Rights Reserved
Last Updated 03/20/98