Optimal Capital Structure of Start-Ups. A field study in the venture capital market

Abstract

Abstract Convertible financing is on the rise as a common method to finance an early stage company. Lots of previous research has been done for later stages of corporate financing and the authors of this thesis want to investigate if such findings also apply in earlier stages. Research among 51 IT-companies in Sweden shows inconclusive results regarding the superiority of a convertible as a financing method. The terms for the convertible are an important factor to consider if faced with a choice of equity or convertible financing. No magical formula for successful financing was found in the study. However the background of the entrepreneur can serve as an indication in determining the risk of bankruptcy. Other conclusions such as the more need for a second round of capital gathering can also be drawn for the research. The final conclusion is however that it is the entrepreneurs that create the value for the firm and the form of financing is less important in the earlier stages. This leads us to both confirming and contradiction of current research and theories. Finally the trend is clear among IT- companies, the convertible is increasing in popularity and is here to stay.