A qualitative study of early stage start-ups in Belgium : Cross-sectoral differences regarding the valuation, incentive systems and control mechanisms.

Details

Supervisors

Grégoire, Philippe

Faculty

Louvain School of Management

Degree label

Master [120] en Ingénieur de gestion

Abstract

Over the last three decades, entrepreneurs, with the help of investors, were instrumental in fostering innovation around the world and creating jobs, a vibrant economic growth and opportunities for further technological innovation. Conscious of entrepreneurs’ and investor’s positive role on our economy, many scholars started investigating the entrepreneurship field. A strand of the literature concentrated on agency theories and the prevalence of asymmetric information between entrepreneurs and investors. Such studies explored the role of control mechanisms and incentive systems to mitigate moral hazard problems and align the views of all parties involved. They also looked at the valuation and how adverse selection causes entrepreneurs and their investors to develop radically opposing views on the valuation of the entrepreneurial venture, with both sides attempting to minimize the contractual price. The present master thesis aims at identifying whether cross-sectoral differences exist between start-ups regarding the valuation, incentive systems and control mechanisms. The most significant result of this study concerns the valuation. We find empirical evidence that differences across sectors might exist. Our results suggest that not all start-ups in a similar stage of funding raise identical amount of money. The results of our interviews also indicate that the motives behind the search for seed capital vary across industries. Finally, our results seem to suggest that while investors usually like to take a 20% to 30% equity stake in a start-up, the criteria on which the decision is based (to go for the top or bottom of the range) are different across industries. Our study shows no evidence that differences across industries exist regarding the incentive systems and control mechanisms employed. However, that does not mean that such mechanisms should be used interchangeably across all industries.