The funding of new technology firms in a pre-commercial industry – the role of smart capital

Abstract

In this article, we focus on how investors add value, in addition to finances, to resource-constrained young technology companies in a pre-commercial and capital-intensive industry. Based on a review of the entrepreneurial finance literature, we group investors' value-added contributions into four categories: ‘Business development’, ‘Technology development’, ‘Investor's outreach’ and ‘Legitimacy’. We build our study on six case studies of firms in the pre-commercial and emerging marine energy industry. Our case companies have received investments from business angels (BAs), venture capital (VC) firms and larger corporations (CVCs). We observed that the contributions from the investors clearly differ and that CVC investors appear to be especially important as their involvement helps increase young technology firms' credibility, which could be a crucial factor in pre-commercial and emerging industries. Overall, by engaging ‘smart capital’, a company can move from a situation of true uncertainty to one of manageable risk.