Componentes del proceso de planeación de Recursos Humanos

The financing side of the entrepreneurial action has been a central matter in entrepreneurship theory, both on the theoretical side than on the empirical one. The theoretical side has, as cited above, defined roles between the entrepreneur (i.e. the agent of action) and the capitalist (i.e. the agent providing funds for a given remuneration), and thus emphasises the centrality of fu de s role in the entrepreneurial action. The entrepreneurial action (both the exploitation of the innovative opportunity and the creation of a new organisation) requires a certain amount of capital, which in many cases is achieved through external financing. In our specific case looking at innovative entrepreneurship (and furthermore at the biotechnology sector), the firms under study require a significant amount of external financing and thus we need to outline the different financing options available to them but also the cost of capital access, both financial and practical (or non-financial). In neoclassical theory looking at entrepreneurship (Cantillon 1755b; Marshall 1895; Mill 1900), the function of capital is often related to the banking loan, in which the entrepreneur borrows money from the banker against given interests until repayment. In these theories, the agent solely responsible for the risk in those theories is the entrepreneur. It must be recognised, however, that this is an idealisation given the existence in the real world of bankruptcy laws that allow borrowers to escape from loans. Even through this type of financing is the most commonly used when transitioning from employment to self-employment, general banking has been proven not to be adapted to some high-tech sectors. These firms, regarding their R&D expenses, do not qualify for general bank loans. However, other types of high risk financing have emerged to back-up those ventures. These are venture capitalists or business angels (Gompers & Lerner 2001). This particular type of finance goes hand in hand with a more interventionist role of the financier.

Venture capitalism is a type of financing which has specific rules and is suited to specific e tu es. P i a il , e tu e apitalists a e o ga isatio s hi h i est lie ts fu ds ith a high return. These kinds of funds usually have a life span of around ten years, in which time it usually sells its holding to pay back their clients (Bidhé 2000, p.144). Given its time constraint and return objectives, venture capitalists prefer to concentrate their investment on a few ventures with

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exceptionally high return potential (ibid.)21_{. Because the venture capitalists aim at financing ventures} generally in the early stages, those organisations have different ways to reduce risks involved in these investments. Firstly, they have mechanisms to monitor their investments and align the a age i te ests ith the e tu e apitalists o je ti es. These i lude stage fi a i g a d remuneration of general management based on results. These mechanisms insure that reasonable milestones are met in order for the VC (Venture Capitalist) to meet his time constraints. They also put in place managers in the top management team, which are known and trusted by them (Gompers & Lerner 2001). Secondly, in order to reduce risk and to improve their firm selection process, the VCs specialise in a given industry and build a network of experts to help them in assessing technology understanding and market opportunities brought by the venture (ibid). Finally, in order to reduce further financial risk, VCs generally choose to syndicate with other VC companies to back a company by putting in place a compensating contract to ensure that their financial assets are mostly protected22_{. Thus venture capitalists, who are considered as higher risk investors, benefit} from mechanisms that reduce risk taking, and thus the entrepreneur has to pay a cost in terms of control over the company.

Business angels are also a type of early financing used by innovative firms in order to get early financing for their risky projects. Business angels are not (in most of the cases) a replacement for venture capitalists, but rather they are more active in earlier stages (i.e. seed financing), since they cannot bear the financial burden of the larger financing that comes later (Cressy et al. 2006). They also tend to invest a much smaller amount of money since they are an individual financier. This type of financing is also less constraining than the former as it does not require any stage financing, due diligence23_{, or attendance at board meetings. Hence, Business Angels are less interventionist in} the day to day running of the company, which means that the entrepreneur is not as much affected in terms of control in comparison to venture capital financing. Business angels can also offer advice to entrepreneurs, since can often be former entrepreneurs or have an extensive knowledge of a specific sector, and also can have a network of contacts that can be of use in a newly created firm.

21 _{This is consistent with the methods by which the venture capitalists operate, as they monitor the ventures}

they invested in to reduce the financial loss risk.

22

To p ote t thei stake i the o pa , e tu e fi s thus ofte take thei i est e ts i the fo of convertible preferred equity or convertible debt, which have higher priority than common stock. In the event of a o pa s sale o li uidatio , o e s of this t pe of e uit get paid efo e o o sto kholde s do. (Gompers & Lerner 2001)

23 _{Due diligence is an investigation carried out by financers in order to assess the quality of the investment}

(through the assets of the company), and can be used in later stages to protect the investor against deficiencies in the investment.

53 Co pa i g the VCs eha iou to the e t ep e eu s, the e t ep e eu still ea s a significant part of the risk. Even if the entrepreneur does not compare in terms of the amount of capital brought by the venture capitalist, and is also at an advantage because he has a better knowledge24 _{of the product he develops, the entrepreneur has little means to diversify its risk} compared with the venture capitalist. The entrepreneur still has to raise funds starting with his personal wealth and additional investments that may be made by those who have a personal relationship with the entrepreneur love money) to be able to benefit from any kind of financing. The financing needed by innovative entrepreneurs is usually high (with some exceptions depending on the sector or the initial project), especially in the biotech sector, and so the entrepreneurs need large amounts of personal funds in order to be able to raise financing from venture capitalists. The entrepreneur therefore takes a high risk on his personal assets and with his personal relationships as the investment assets are concentrated into the creation project. Secondly, in terms of control, the entrepreneur usually has to give up equity and thus control (this also includes accepting other managers on board), but also has to follow a tight path of development imposed by the venture capitalist in terms of milestones. Thus this leaves the entrepreneur with his personal wealth and relationships at high risk with limited control over the outcomes of the firm (as low profit outcomes with lower risk are not of interest of the VCs). In conclusion, even if the capitalist function can be seen as the function that bears risk in theory, in practical terms organisation that represents the capitalist function in the economy (such as banks and venture capitalists) has a variety of mechanisms to reduce uncertainty. Thus even if theoretically it is arguable that the capitalist function might be the risk bearer, in reality the entrepreneur has much fewer opportunities than the capitalist to reduce risks and uncertainty embedded in the innovation and creation process.

The entrepreneurship theory has discussed theoretically and empirically the role of the capitalist in the entrepreneurial action. His role is central as it is indispensable for most of the entrepreneurial action. Innovative firms, especially in the biotechnology sector, have specific needs in terms of financing, and thus the traditional banking system is not always adapted to their needs. Thus they turn to specific types of financing that are more adapted to higher risk projects, which can include venture capitalists or business angels. These types of financing come with advantages but also drawbacks, especially in terms of control over the company. The discussion of the relationship between entrepreneurs and their financing partners is therefore a central issue in innovative entrepreneurship and is the topic of discussion in Chapter 4. However, financing partners are not the

24 _{This refers to the fact that the entrepreneur knows the advantages and the potential shortcoming of his}

product, which is usually a source of asymmetry of information between the entrepreneur and the venture capitalist.

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only type of organisation that plays a role in the development of new ventures, other organisations and institutions also have an influence.