Acquisition of Additional Equity Capital by Small Firms – Findings from the National Survey of Small Business Finances
While the importance of venture capital to the growth of small firms has been widely discussed during the past decade, little is known about the acquisition of additional equity capital, especially internal equity capital, by the majority of small firms in the U.S. This paper utilizes the information collected in the Federal Reserve Board’s 1993 and 1998 Small Business Finance Surveys to investigate the acquisition of additional equity capital by small firms. While the importance of public issue markets and venture capital investment in promoting the growth of small dynamic firms cannot be denied, the importance of external equity capital seems to be overstated. Only a very small number of small firms acquired additional external equity capital. It is the internal equity capital, not external, equity, that is one of the major financing sources for most small firms. We found that younger, lower quality firms were more likely to acquire additional internal equity capital than other firms. There appeared to be a “pecking order” of borrowing from internal sources to traditional lenders to non-traditional lenders. In addition, internal equity capital and debt acquired from traditional and non-traditional lenders appeared to be complementary financial resources.
KeywordsSmall Business Venture Capital Private Equity Credit Union Equity Capital
Unable to display preview. Download preview PDF.
- Barton, S., Mathews, C. 1989‘Small Firm Financing: Implications from a Strategic Management Perspective’Journal of Small Business Management2717Google Scholar
- Freear, J., Wetzel, W. 1995Who Bankrolls Software EntrepreneursBygrave, W. D.Birley, S.Churchill, N. C.Hay, M. G.Keeley, R. H.Wetzel, W. eds. Frontiers of Entrepreneurship ResearchBabson Center for Entrepreneurial StudiesWellesley394407Google Scholar
- Kuratko, D., Hornsby, J., Nafizinger, D. 1997‘An Examintion of Owner’s Goals in Sustaining Entrepreneurship’Journal of Small Business Management352433Google Scholar
- Petty, J. W., Bygraves, W. 1993‘What Does Finance Have to Say to the Entrepreneur?’The Journal of Small Business Finance2125137Google Scholar
- Schmid, F. 2001‘Equity Financing of the Entrepreneurial Firm’Federal Reserve Bank of St. Louis Review831528Google Scholar
- Timmons, J. 1997New Venture Creation4Irwin PublishersChicagoGoogle Scholar