The funding of new technology firms in a pre-commercial industry – the role of smart capital

Abstract

In this article, we focus on how investors add value, in addition to finances, to resource-constrained young technology companies in a pre-commercial and capital-intensive industry. Based on a review of the entrepreneurial finance literature, we group investors' value-added contributions into four categories: ‘Business development’, ‘Technology development’, ‘Investor's outreach’ and ‘Legitimacy’. We build our study on six case studies of firms in the pre-commercial and emerging marine energy industry. Our case companies have received investments from business angels (BAs), venture capital (VC) firms and larger corporations (CVCs). We observed that the contributions from the investors clearly differ and that CVC investors appear to be especially important as their involvement helps increase young technology firms' credibility, which could be a crucial factor in pre-commercial and emerging industries. Overall, by engaging ‘smart capital’, a company can move from a situation of true uncertainty to one of manageable risk.

Keywords:

• smart capital
• investor value-added
• venture capital
• CVC
• BA
• new technology-based firms
• pre-commercial industry
• emerging industry
• marine energy

Acknowledgements

The authors thank Niko Ristola for assistance in data collection and the Norwegian Centre for Sustainable Energy Studies (CenSES) for its financial support. Furthermore, we would like to thank the two anonymous referees for their valuable comments to earlier versions of this manuscript.

Notes on contributors

Øyvind Bjørgum is a Ph.D. student at the Norwegian University of Science and Technology (NTNU). His research interests focus on growth and development of new technology-based firms. He has published in the International Journal of Entrepreneurship and Small Business.

Roger Sørheim holds a position as a professor in technology management at the Norwegian University of Science and Technology (NTNU). The primary focus of his research relates to early-stage finance and commercialisation of technology. He has published in a number of peer-reviewed journals, including Journal of Small Business Management, Venture Capital, Technology Analysis and Strategic Management, Entrepreneurship and Regional Development and Technovation.