What is it about?

Venture Capitalists (VCs) help entrepreneurs to be successful by providing financing and other value added services, such as access to existing networks of businesses. In this study, I find entrepreneurs that have already grown their businesses to some extent are more likely to secure financing from less reputable VCs (less reputable does not mean bad, just not as reputable as some other VCs). Correspondingly, entrepreneurs just starting their businesses are more likely to secure financing from reputable VCs. Financing from reputable VCs is more expensive than financing from less reputable VCs.

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Why is it important?

The findings in this study demonstrate that the cost of financing is important to entrepreneurs only when they have already developed significant value in their companies. This implies young or budding entrepreneurs care more about having the opportunity to create the new businesses they envision than the cost of financing the new businesses.


In countries that have a professional entrepreneurial class, entrepreneurs want to make a profit, but care more about having the opportunity to solve the problem, challenge, or need that is the target of their product or service. These entrepreneurs understand that success in the first venture will create significantly larger profits in future ventures. If developing countries are to achieve sustainable development, the presence and encouragement of such professional entrepreneurs is critical.

Dr Oghenovo A Obrimah
Fisk University

Read the Original

This page is a summary of: How Do Higher Quality Entrepreneurs Choose Venture Capitalists?, SSRN Electronic Journal, January 2004, Elsevier,
DOI: 10.2139/ssrn.641681.
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