INITIAL HUMAN AND FINANCIAL CAPITAL AS PREDICTORS OF NEW VENTURE PERFORMANCE

This research seeks to predict the performance of new ventures based o n factors that can be observed at the time of start-up. Indicators of initial human and financial capital are considered to determine how th ey bear upon the probability of three possible performance outcomes: ( 1) failure, (2) marginal survival, or (3) high growth. Four categories of initial human and financial capital are examined. General human ca pital, represented here by the entrepreneur's education, gender, and r ace, may reflect the extent to which the entrepreneur has had the oppo rtunity to develop relevant skills and contacts. Management know-how, embodied in the entrepreneur or available through advisors or partners , reflects management-specific skills and knowledge, without regard to the kind of business. Industry-specific know-how reflects specific ex perience in similar businesses. Financial capital is one of the most v isible resources; it can create a buffer against random shocks and all ow the pursuit of more capital-intensive strategies, which are better protected from imitation. The study utilizes a longitudinal study of 1 053 new ventures, representative of all industry sectors and geographi cal regions. The research departs from most previous studies in consid ering different measures of performance (marginal survival and growth) and in considering explicitly whether the factors contributing to mar ginal survival differ from those contributing to high growth. It was f ound that measures of general human capital influenced both survival a nd growth (except for gender, with women-owned ventures being less lik ely to grow, but just as likely to survive). Management know-how varia bles had more limited impact. Having parents who had owned a business contributed to marginal survival, but not to growth. Number of partner s contributed to growth but not to survival. Management level, prior e mployment in non-profit organizations or not having been in the labor force, and the use of professional advisors did not have significant e ffects. Industry-specific know-how contributed to both survival and gr owth. Amount of initial financial capital also contributed to both. Th e usefulness of the model is enhanced by the fact that the resource va riables considered are relatively easy to assess and all can be consid ered at the time of start-up. Although some of the human capital varia bles cannot easily be changed, the benefits or risks associated with e ach can be assessed. In some cases, potential problems can be identifi ed so that plans can be modified to improve prospects. Overall it appe ars that, using a model based upon the initial human and financial cap ital of the venture, it is possible to predict the performance of new ventures with some degree of confidence.