Entrepreneurial financing in new business ventures: a help-seeking behavior perspective

How and from whom prospective entrepreneurs seek their start-up capital for new venture formation represent fundamental questions in entrepreneurial financing. Drawing on research of help-seeking behavior, we propose that apart from economic rationale entrepreneurs' decisions to seek financing may be influenced by socio-psychological factors. Using a scenario experiment (venture risk x relational proximity) to investigate how prospective entrepreneurs considered funding from family and outsiders, it was found that they tended to seek family financing when the family was close and the risk was high, and inclined to seek outsider funding when the venture risk was high and the family was not close. The findings might seem paradoxical but they actually underscore the influence of socio-psychological factors in entrepreneurial financing decisions and offer novel contributions to the entrepreneurship, informal investment, and education literatures.