Combining formal and informal financial sources: Russian early entrepreneurs' and established firms' structure of external financing

Abstract

Purpose

The aim of the paper is to analyze quantitatively and qualitatively requirements of Russian micro‐ and small‐firms in financial sources, along with opportunities and restrictions in the mobilization of investment at the different stages of a firm's life cycle.

Design/methodology/approach

In this paper the determinants of the propensity to invest and the supply of funding are investigated by using the Global Entrepreneurship Monitor (GEM) data set for Russia in the time period from 2006 to 2011.

Findings

The paper provides the analysis of Russian early entrepreneurs' and established business owners' decisions about the preferred structure of financial sources, comprising both statistical and logistic regression approaches for this investigation. The findings indicate that in Russia the structure of financial sources of start‐up entrepreneurs is predominated by “love capital” (mainly private and family savings), meanwhile, the percentage of business angels' financing is low in comparison with innovation‐driven countries. Moreover, there are merely extra‐economic factors, which influence informal investors' decision making on funding: personal relations with a borrower, an optimistic view on macroeconomic perspective and high status of an entrepreneur.

Practical implications

The findings in this paper suggest that this research can help the officials to formulate a program of SMEs' support at different stages of the financial chain in Russia.

Originality/value

In this paper the early and middle stages of a firm's life cycle are examined and some practical advice on a company's development and expansion are given.

Citation

Gudov, A. (2013), "Combining formal and informal financial sources: Russian early entrepreneurs' and established firms' structure of external financing", Journal of Chinese Entrepreneurship, Vol. 5 No. 1, pp. 39-60. https://doi.org/10.1108/17561391311297879