Embedding or Disembedding from the Founding Location: The Role of Early-stage Financing on the Emergence of the Territorial Embeddedness of New Technology-Based Firms

Abstract

Research on New Technology-based Firms (NTBFs) has made significant progress in understanding why these firms are founded in some locations and why they tend to agglomerate. The nearby availability of resources is described as a key factor because by being in close proximity to actors that possess resources, founders of NTBFs can make better use of social networks to obtain these resources. However, to date little is known about how NTBFs become more committed to – or anchored in – their founding location as they evolve. In other words, NTBF research provides limited knowledge about how these firms become more or less territorially embedded in their founding location. In addition, NTBF research also fails to explain if (and how) the two most common forms of early stage finance in NTBFs – i.e., bootstrapping and external equity finance (EEF) – are significant contexts influencing the emergence of the territorial embeddedness of these firms. This research uses qualitative, process-based research methods to create one generic story – or narrative – for a group of four bootstrapping NTBFs, and one generic story for a group of eight EEF NTBFs. I compared and contrasted these two generic stories and concluded that across a four-phase time frame, bootstrapping NTBFs tended to become more territorially embedded in their founding location than their EEF counterparts. Primarily this is because bootstrapping founders: a) developed more cohesive networks both within and outside the firm; b) tended to develop deeper social relationships based on mutual trust and strong direct ties; c) tended to initiate – and then maintain – a position of centrality in their networks; d) retained more autonomy in location decisions and appeared to (more actively) seek to configure and nurture their founding location networks. In contrast, EEF NTBF founders: a) developed much sparser networks both within the firm and outside; b) tended to develop shallower market and hierarchical relationships which are based on norms/sanctions, obligations/expectations, and weaker indirect ties; c) over time, tended to become increasingly more peripheral in their networks, and; d) have less autonomy in location decisions and appeared to (more passively) follow the investor’s (and sometimes their own) priorities for configuring and nurturing the networks in overseas locations.