Abstract

With an estimated $6 trillion expected to be directed toward social enterprise organizations by 2052, entrepreneurs and venture philanthropists are experimenting with a variety of forms of social ventures that generate economic, social, and/or environmental benefits (Fulkerson & Thompson, 2008). Research has highlighted critical issues surrounding financing of social enterprises (Shaw and Carter, 2007) and concluded that traditional financial theories do not provide an adequate framework to understand the financing of social ventures. Thus, there is a real gap in our understanding of how social entrepreneurs are actually financing their nascent ventures. The traditional approach to financing non-profit social ventures is through grants, fundraising and limited use of debt, while for-profit ventures get funding through market-rate private equity and debt (Emerson et al., 2007). However, while Tiku (2008) and Fulkerson & Thompson (2008) highlight that more institutional sources are beginning to provide debt and equity investments to social entrepreneurs. Accordingly, we aim to investigate what kinds of funding entrepreneurs exploiting socially driven opportunities versus financially driven opportunities are using. Building upon research that investigates entrepreneurial founding teams (Ruef et al., 2003), we draw on the concept of the entrepreneurial group (Ruef, 2010). An entrepreneurial group can be described as the set of actors who actively support the creation of a new organization (Ruef, 2010). By applying an inductive framework and the entrepreneurial group perspective, this study examines how various attributes of the start-up impact the funding choices executed at the earliest stages of venturing. In sum, we investigate the following research questions:

1. Does the kind of opportunity (socially driven versus financially driven) relate to the kinds of financing utilized by start-ups?;

2. Do entrepreneurial group characteristics affect the kinds of financing utilized by start-ups?;

3. And finally, does the kind of opportunity (social versus financial) modify the relationship between entrepreneurial group characteristics and start-up financing?

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