Essays on the Finance of Startups

Abstract

The innovative nature of startups may foster the development of all industry sectors. In an era with low interest rates on many traditional investment alternatives, startups have become a more and more noteworthy way of investing for professional as well as private investors. The goal of the presented work is to provide insights into the effects of internal and external factors influen-cing startup development. Non-financial resources are crucial for startup success. Using proprietary data by one large cor-porate venture capitalist, the first part of the thesis provides descriptive evidence that getting ac-cess to the CVC’s network is of startups’ main interest when they engage in a relationship with a CVC. The results underscore that the demand for particular non-financial resources varies de-pending on startup-specific characteristics. The second part of the thesis demonstrates that increasing startups’ revenues appears signifi-cantly more important with low financial endowment. The analysis also shows that working on the development of internal human resources and products or operations helps startups to over-come financial constraints and induce positive firm performance. The effect appears stronger for startups in less developed countries. Informational differences also play a major role in investment decision-making. Based on a pro-prietary dataset by the largest crowdinvesting platform in Mexico, the third part of the thesis dis-plays that informational disadvantages decrease the investment probability and investment amount. A given investor-startup-relationship does not appear to fully equal out this detrimental effect. Observable signals seem to positively influence investment decisions. The last part of the thesis shows that the macroeconomic situation may additionally influence startup investments. The analysis focuses on a recent tax change in the German corporate tax law which has increased startups’ possibilities to disclose loss carry forwards, leading to reduced tax payments in future years. Changing investment behavior can mainly be observed for in-vestments in startups of very early development stage. It appears important to consider anticipa-tion effects of investors as they may decide to postpone their investments depending on public announcements.