Financing of entrepreneurial ventures: Entrepreneurship Policy and Public Start-Up Capital

This article uses institutional theory in the context of entrepreneurship policy and the financing of new firms to examine the effect of public sources of start-up capital on entrepreneurial performance at the firm and state levels. The study develops a dataset that combines the 2007 Survey of Business Owners (SBO) Public Use Microdata Sample (PUMS) with state data from the Census Bureau’s Business Dynamics Statistics. The final dataset contains over one million observations from firms across the US that were operational in 2007, and is analyzed using two-stage least squares (2SLS) and OLS for comparison. Results indicate that public intervention in the provision of start-up capital has an immediate marginal negative effect on employment growth at the firm level, and a positive effect in the long term, once the firm is established, on the establishment entry rate at the state level, compared to firms using private sources of start-up capital.