The Role of Social Networks in Financing High Technology New Ventures

This paper focuses on the role of networks in financing high technology start-ups. We claim that the role of networks is twofold. On the one hand networks are important because network contacts can give direct access to resources. On the other hand, networks are important because being affiliated with prominent partners can send important information signals to financial resource providers. In this paper we focus in particular on a special type of signal, being the referral. The dual role of networks is studied in four high technology start-ups using a social systems approach. Our results show that start-ups in early development stages that have little experience and knowledge more often use referrals in accessing financial resource providers. They seem to profit from a network rich in structural holes and many strong connections in getting financed. Added to these findings, we found that strong ties are more often activated as a referral source than weak ties. On the other hand, the more experienced entrepreneurs/start-ups in latter development stages access financial resource providers more direct without using referrals. They seem to profit from a network rich in structural holes combined with many weak ties.