Funding acquisition drivers for new venture firms: Diminishing value of human capital signals in early rounds of funding

  • Received December 24, 2018;
    Accepted February 1, 2019;
    Published February 15, 2019
  • Author(s)
    Snehal Shetty
    ORCID Researcher ID ,
    Ranjany Sundaram
    ORCID Researcher ID
  • DOI
    http://dx.doi.org/10.21511/ppm.17(1).2019.08
  • Article Info
    Volume 17 2019, Issue #1, pp. 78-94
  • TO CITE АНОТАЦІЯ
  • Cited by
    4 articles
  • 1297 Views
  • 188 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

Multiple factors such as human capital, amount raised in the first round, innovation etc. have an impact on the funding prospect of new ventures. This paper explored the influencing factors that drive multiple rounds of funding for new venture firms and provided a much broader perspective of funding drivers during the early stages of the new venture firm. Using signalling theory and human capital theory, this paper analyzed signals that influence the acquisition of funds in the first round and whether those signals persisted for the second and third rounds of funding when information asymmetries between the investors and new venture firms reduce. This study disentangled the signalling effects of the human capital factors across three funding rounds and proved the diminishing value of signals across each subsequent round of funding. Finding showed that the signal effect from premier institution education was the only human capital signal that persisted across each round of funding, while other signals did not persist beyond the first round of funding. In addition, new venture firms with founders educated from premier educational institutions were able to attract more investors and close more funding rounds. This study also proved that the amount raised in the first round of funding positively impacted the amounts raised in the second and third rounds stressing its importance for new venture firms. Empirical demonstration of the propositions was done with 156 new venture firms in India, the fastest growing and third largest startup ecosystem in the world.

view full abstract hide full abstract
    • Figure 1. Signaling effects of human capital factors across multiple funding rounds and inter-funding round dependencies
    • Figure 2. Number of funding rounds closed and number of investors attracted across multiple rounds of funding
    • Figure 3. Mosaic plot showing relationships between number of funding rounds and human capital variables
    • Figure 4. Mosaic plot showing relationships between number of investors and human capital variables
    • Figure 5. Inter-funding round dependencies
    • Figure 6. Residual vs fit plot for linear regression – first round funding amount vs human capital variables
    • Table 1. Model development criteria
    • Table 2. Descriptive statistics and Pearson correlations
    • Table 3. Estimates for raising funds across multiple rounds of funding using binary logit regression
    • Table 4. Odds ratio for more than one round of funding
    • Table 5. Estimates for number of funding rounds and number of investors attracted using Poisson regression
    • Table 6. Relationships between amounts raised in each funding round
    • Table 7. Estimates for amount of funds raised across multiple rounds of funding using linear Regression
    • Table 8. Linkage of proposed method and results
Related Articles

  • The impact of the COVID-19 outbreak on the Indian stock market – A sectoral analysis

    Rahul KumarORCID , Prince BhatiaORCID , Deeksha GuptaORCID doi: http://dx.doi.org/10.21511/imfi.18(3).2021.28
    Investment Management and Financial Innovations Volume 18, 2021         Issue #3         pp. 334-346 Views: 7363 Downloads: 3487 TO CITE АНОТАЦІЯ

    This paper aims to examine the impact of the COVID-19 outbreak on Indian firms listed on the NSE and analyze its impact on various sectors. In addition, a sub-sample analysis based on market capitalization was performed to understand the effect of size during extreme events. The sample consisted of 1,335 firms listed on the NSE India. A standard event study outlined by Brown and Warner (1985) was employed to analyze the price impact on the COVID-19 outbreak. The event windows from -10 days to +10 days were selected. The estimation window is 250 days. The Nifty 50 has been chosen as a proxy for market return. The sample firms witnessed a negative impact of the COVID-19 outbreak with a negative CAAR in different event windows. In addition, various sectors are classified according their responsiveness towards the COVID-19 outbreak into three groups: highly negatively affected, moderately negatively affected, and slightly negatively affected. The paper also points out that the pandemic substantially affects the above-median market capitalized firms than the below-median market capitalized firms, which contradicts the size effect phenomenon. The results assist shareholders in managing their portfolios and mitigate the systematic risk of their investments during extreme events such as a pandemic, wars, and others. This study is the first comprehensive analysis of the impact of the COVID-19 outbreak on different sectors in India. It is also the first study to investigate the size effect anomalies during extreme events.

  • The impact of the COVID-19 pandemic on retailer performance: empirical evidence from India

    Amgad S.D. KhaledORCID , Nabil Mohamed AlabsyORCID , Eissa A. Al-HomaidiORCID Researcher ID, Abdulmalek M.M. SaeedORCID doi: http://dx.doi.org/10.21511/im.16(4).2020.11
    Innovative Marketing Volume 16, 2020         Issue #4         pp. 129-138 Views: 3462 Downloads: 5876 TO CITE АНОТАЦІЯ

    The study aims to synthesize the challenges that retailers are facing during the COVID-19 emergency. The research is definitive, informative, and based on a single design of cross-sectional research. Quantitative data based on the research instrument were produced (a questionnaire). Five hundred responses were collected from employees of major retail stores in India. Retailer performance is considered a dependent variable, whereas employee well-being, customer and brand protection, use of technology, government policies, and supply chain are used as independent variables. The current study results indicated that employee well-being and government policies have a significant positive impact on retailer performance, while customer and brand protection, use of technology, and supply chain have a significant positive impact on retailers’ performance. This study will help retailers develop strategies for their employees to protect them and understand that technology is needed in the new normal times. This study highlights the need to be flexible in executing strategic strategies, but retailers need to develop comprehensive action plans, including selecting managers of initiative and defining goals and deadlines. Provided that retailers’ current reality is different from the old normal, no time is lost in taking audacious action.

  • Industrial development in Saudi Arabia: disparity in growth and development

    Anis AliORCID doi: http://dx.doi.org/10.21511/ppm.18(2).2020.03
    Problems and Perspectives in Management Volume 18, 2020         Issue #2         pp. 23-35 Views: 3005 Downloads: 1021 TO CITE АНОТАЦІЯ

    Industrial development in any nation plays a vital role in the strengthening of the economy and employs human resources as per specifications and directly towards the mainstream of the nation. In Saudi Arabia, there was rapid industrialization for four decades. Some manufacturing industries performed well, while some internal and external business environment factors influenced the others’ performance. The study focuses on historical development, as well as recent trends of well-performing and poor-performing industries of Saudi Arabia. Small manufacturing industries in Saudi Arabia are underdeveloped and need more attention to attain sustainable and progressive growth rate in the form of the number of establishments to enjoy the potential. Manufacture of tobacco, computer, electronics and optics, pharmaceuticals and transport equipment are the deprived and underdeveloped industries of the manufacturing sector. There should be some easy credit schemes for the development of deprived or underdeveloped manufacturing industries. To attain sustainable growth and development of the manufacturing sector, a positive attitude of the government towards underdeveloped manufacturing industries, favorable labor laws, and entrepreneurial awareness, technical and financial assistance are necessary. The growth and development of the manufacturing sector of Saudi Arabia will be helpful in the attainment of goals of Vision 2030.

Download Preview
Close
Problems and Perspectives in Management
Problems and Perspectives in Management