The role of social networks in financing technology-based ventures: An empirical exploration

Abstract

The focus of this study is on the role of networks in both identifying and accessing financial resource providers by technology-based ventures. We explore the role of networks by taking into account several specifications. We (1) acknowledge that new ventures can access financial resource providers both directly and through referral, (2) make an analytical distinction between the identification of financial opportunities and the access to financial resource providers, and (3) study the contingencies that influence the effectiveness of certain network positions and relationships in the new venture financing process. In order to explore the role of networks in financing, we conducted case studies in four technology-based ventures. Our findings show that for identifying financial opportunities and resource providers, a positional network that is rich in structural holes is favourable for new ventures. In a relational sense, for new ventures that directly access financial resource providers, having weak network ties are most effective. When new ventures use a referral to access a financial resource provider, referrals from referral sources that are strongly tied to the venture are the most effective. Furthermore, our results show that the effectiveness of certain network positions and relations largely depends on contingencies. Based on our findings, we shape several propositions that provide new directions for future research. The current study makes several contributions to theory and provides several interesting guidelines for start-up entrepreneurs.

Keywords:

• financing
• technology-based ventures
• social networks
• referrals
• venture capital
• business angels

Notes

1. For the remainder of this article, the relational weak tie argument is considered part of Burt's logic, while the strong tie argument is considered part of Coleman's logic.

2. TOP is an entrepreneurship support scheme of a university. The TOP files contain multiple versions of business plans over time, minutes of meetings with business coaches, and notes of these business coaches.