How Entrepreneurs Manage Risk and Finance in High Performance New Ventures



One of the biggest problems faced by entrepreneurs is getting access to finance. We investigate finance constraints experienced by a specific group of entrepreneurs, namely those owning and managing high performance new ventures. Finance gaps are typically most severe for these high risk/reward ventures. They are also the ventures that have the potential to create most jobs/value added and are typically the darlings of most public policy aimed at enterprise. A new taxonomy of new venture finance constraints is proposed which is based on firm strategy. We show how the most successful entrepreneurs within this group use strategies to minimise financial constraints and risk while simultaneously maximising innovative agility. These entrepreneurs do not conform to the risk prone and innovative entrepreneurial archetype. Instead, they are more reformers than revolutionaries and less susceptible to financial constraints than previously depicted in the literature. By contrast, a smaller proportion of high risk/reward use strategies which do not permit finance and risk minimisation and this group faces the most severe finance constraints. We argue that research on finance constraints is enhanced by differentiating between these strategic types of new ventures among the high risk/reward category.
Professor Andrew Burke is the founding Director of the Bettany Centre for Entrepreneurial Performance and Economics at Cranfield School of Management, UK. Andrew is also Research Professor at the Entrepreneurship Group of the Max Planck Institute of Economics, Germany. His research mainly focuses on topics in finance and industrial organisation. Andrew has co-authored several EIM Research Reports on such topics as business angel finance and the use of blue ocean versus competitive strategies in retail markets. A summary of the latter research has recently been published in the Harvard Business Review. Next to his academic career Andrew is also a real business man: he is involved in a number of ventures in advertising, publishing, property and website software.

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André van Stel Jörn Block
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