External capital for NTBFs: the role of bank and venture capital

The objective of our research is to determine what factors at the firm level influence access to external capital for new technology-based firms (NTBFs) and what influences the rank ordering of applying to different sources. Furthermore we investigate whether NTBFs differs from other SMEs. Through an empirical analysis of determinants on UK NTBFs financing, we confirm the existence of a hierarchy between internal and external finance and verify the classic pecking order theory (POT) (preference for banks over venture capital (VC) financing). NTBFs appear more capital demanding than other SMEs. They make significant approaches to banks and are only slightly more credit rationed than other SMEs. The data also confirm that VCs are approached significantly more by NTBFs. Nevertheless, the detailed analysis of the determinants of NTBFs' fund raising process (demand side) reveals that they do not differ from other SMEs. Our paper terminates with the development of an expert system (Bayesian network) shaped on the empirical evidences collected, which acts as a decision support system for high-tech entrepreneurs engaging in fundraising.