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Unformatted text preview: Informal and Early Formal Financial Support in the Business Creation Process: Exploration with PSED II Data Set by Paul D. Reynolds * The sequence, amounts, and timing of informal and formal support for emerging firms, as well as the impact on start-up outcomes, continue to be a central issue. Tracking reports from a national representative sample of nascent enterprises indi- cates that average amount of informal support is $ 48,000: formal support, provided after the nascent enterprise has become a legal entity, averages about $ 200,000. There is little relationship between the informal support and outcomes (new firm, continu- ing start-up effort, or quit) and informal support, but virtually no cases reporting discontinuation report any formal financial support. Over 75 percent of the total funding is provided to initiatives that have not yet become new firms. Introduction Money does not start new firms. People start new firms; some money is usually required. How much money, the sources of the funding, the conditions associated with its provision, when it facilitates a start-up, and its relative importance are all topics of interest in understanding the firm creation process. There has been a considerable amount of research on these topics, reflecting wide variation in approaches, the nature of the business unit under examination as well as the stage of the business life course under consideration. Most research has indicated that more money is helpful for business creation, growth, and survival, but there is a considerable lack of preci- sion on many issues. Extant Approaches Considerable attention has been given to the availability of financial support as *Originally prepared for presentation at the Kaftman-Federal Reserve Bank of Cleveland Conference on Entrepreneurial Finance on 1213 March 2008. Paul D. Reynolds is the Howard Hoffman Distinguished Scholar of Management and Entrepreneurship at The George Washington University. Address correspondence to: Paul Davidson Reynolds, PO Box 882103, Steamboat Springs, CO 80488-2103. E-mail: email@example.com. Journal of Small Business Management 2011 49(1), pp. 2754 REYNOLDS 27 a causal factor affecting the implementa- tion of new businesses. Four different orientations illustrate the developments and limitations of extant approaches. For example, lacking direct data on business creation, much analysis by economists has emphasized reports of self-employment, or new entry into self- employment. Based on this measure of entrepreneurship, the importance of the liquidity effectthe availability of funds for new venturesis often discussed as one of the most critical factors leading to new firm creation (Dunn and Holtz- Eakin 2000; Evans and Leighton 1989; Le 1999). However, these assessments have not only focused on a very narrow range of business creation activitya focus on self-employment omits the substantial number of team efforts to create new venturesand use a very limited number...
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This note was uploaded on 06/02/2011 for the course AK 3920 taught by Professor Jonkerr during the Winter '10 term at York University.
- Winter '10