Abstract

Finance decisions are key decisions made by entrepreneurs, which bear significant implications for the operations, risk of failure, performance and future growth potential of ventures (Michaelas et al., 1999; Cassar, 2004). Researchers traditionally assume that cash flow constrained ventures experience difficulties in their development and growth if they are unable (e.g. Hubbard, 1998) or unwilling (e.g. Kaplan and Zingales, 1997) to attract sufficient external financing. More specifically, due to problems of adverse selection and moral hazard (Gompers, 1995), investors may ration capital and ventures may only be able to obtain certain types of funding (Carpenter and Petersen, 2002). As a result, entrepreneurial ventures often face financing constraints that may lead to underinvestment problems (Hubbard, 1998) and thereby constrain growth (Carpenter and Petersen, 2002).

A firm’s initial financial resources may hence imprint their mark on the firm’s other resources and capabilities and ultimately on firm performance. However, much remains to be discovered on the relation between a firm’s initial resources and performance (Cassar, 2004).

In this study we will examine whether the initial financial strategy of the start-up company has an impact on the start-up performance.

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