Informal and Early Formal Financial Support in the Business Creation Process: Exploration with PSED II Data Set

Abstract

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 indicates 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, continuing 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.

1. Originally prepared for presentation at the Kaftman‐Federal Reserve Bank of Cleveland Conference on Entrepreneurial Finance on 12–13 March 2008.

2. Paul D. Reynolds is the Howard Hoffman Distinguished Scholar of Management and Entrepreneurship at The George Washington University.

1. Originally prepared for presentation at the Kaftman‐Federal Reserve Bank of Cleveland Conference on Entrepreneurial Finance on 12–13 March 2008.

2. Paul D. Reynolds is the Howard Hoffman Distinguished Scholar of Management and Entrepreneurship at The George Washington University.

Notes

1. Originally prepared for presentation at the Kaftman‐Federal Reserve Bank of Cleveland Conference on Entrepreneurial Finance on 12–13 March 2008.

2. Paul D. Reynolds is the Howard Hoffman Distinguished Scholar of Management and Entrepreneurship at The George Washington University.

1 For three or more consecutive months in PSED I.

2 All interview schedules, project documentation, and data sets suitable for SPSS or SAS analysis are publically available at no charge at http://www.psed.isr.umich.edu.

3 The 24‐month follow‐up data for the PSED II cohort was available in late fall 2008; the 36‐month follow‐ups were initiated in the fall of 2008 and the data should be available in the fall of 2009.

4 Many of these modules are based on the same modules used in the PSED I interview schedules. Detailed discussions of the rationale and background are found in Gartner et al. (2004).