The Survival of Start-Ups: Do Their Funding Choices and Bank Relationships at Birth Matter?

Abstract

In this paper we seek evidence for the theory that start-ups' founding choices imprint them, affecting their chances of survival for a long period of time. Based on a unique dataset of Portuguese start-ups, we find that larger start-ups and start-ups with less leverage are more likely to survive for longer periods of time. The same is true of start-ups that opt for maintaining a unique bank-lending relationship and those that have a bank among their shareholders. Lending relationships with state-owned banks do not affect these firms' chances of survival. Our investigation into the effects of start-ups' founding choices of these variables shows that their founding size and leverage as well as the mix of funding sources that they choose at birth affect their chances of survival for several years. Importantly, the future effects of some of these choices do not decay as firms age, providing, therefore, support to the theory that start-ups' founding choices imprint them.

Keywords: Start-ups, funding sources, lending relationships, bank equity stakes in firms

JEL Classification: G24, G33, L33