Start-Ups and External Equity: The Role of Entrepreneurial Experience

A long-standing problem for most business start-ups is acquiring external equity during the first year of operations. In explaining the financing decisions of business start-ups, Meyer’s (1984) pecking order theory serves as a logical working hypothesis. Treating the pecking order to be the resolution to an information problem about the potential profitability of a business startup, this paper analyzes the determinants of obtaining external equity. Special consideration is given to the role of entrepreneurial experience. The results suggest that entrepreneurial experience impacts the extent to which key factors affect a start-up’s ability to obtain external equity.