A Study On The Factors Impacting Performance Betting And Business Performance Of Startup Companies

With China’s economic restructuring and industrial upgrading,business venture has drawn widespread attention.China’s national strategy of "Peoples’ Business Venturing and Innovating” has inspired many people to choose the path of being an entrepreneur.Startup companies are increasingly adopting external development strategies relying on external capitals to achieve rapid growth of their own businesses.To bridge the deal differences between business founders and investors,the Performance Betting is used as a solution to the “lemon” market problem.However,the large number of failures of business founders by using Performance Betting has made it a high concern in the industry and academia.The current research on Performance Betting of startup companies mainly reflects the perspective of venture capital investors and researches of this field is overall fragmented,lacking a systematic connection.Therefore,the main research objective of this dissertation is to analyze the working mechanism of performance betting from the perspective of business founders,discover important factors and their relations that contribute to the performance betting,and find out the root cause of the betting performance,so as to provide theoretical guidances and practical references to startup founders.This dissertation needs to answer three questions:(1)what is the working mechanism of performance betting as a financial tool from the perspective of business founders?(2)What are critical factors that contribute to the startup companies’ betting performance?(3)What is the deep rooted cause for better performance of startup companies under performance betting arrangement? The main research contents of this dissertation are as follows:(1)analyzing the payoff structure and risk of business founders in different types of performance betting,as well as the negotiation strength of business founders under different scenarios;(2)exploring the internal and external factors affecting startup companies’ performance betting and their relationship;(3)finding out the deep-seated cause for the the performance of startups coampnies under betting arrangement from the perspective of Dynamic CapabilitiesThis dissertation adopts a mixed approach of qualitative and quantitative methods combining literature research,theoretical analysis,case studies,and survey method.Quantitative statistical tools SPSS and AMOS are used.Based on the theory of business venturing,theory of venture capital and Performance Betting,the dynamic ability theory of firms,the overconfidence theory of business founders,and the contingency theory,this dissertation analyzes for business founders different types of Performance Betting,their payoff structures and potential risks.It analyzes the specific factors under the context of China that affect startup companies’ Performance Betting arrangement,and explores the mechanism between founder and venture capital investor’s behavior,tests the root cause of startup companies betting dilemma from the perspective of dynamic capability,and thus has findings as follows:First,performance betting can be divided into three basic types,which have different payoff and risk structure for business founders and,together with strict exit process,put business founders into a weak position of negotiation.Performance betting can be divided into performance betting on the process and performance betting on the result.The main types of performance betting on the process include "cash compensation" and "equity adjustment".The major type of result-oriented performance betting is the "pre-IPO performance betting".The risk exposure of business founders in "cash compensation" and "pre IPO performance betting" is the highest,and while in "equity adjustment" it is lower,there is a risk of losing control of the business founder instead.In addition,there is a strict mechanism to protect the first priority rights of investors behind terms of the performance betting agreement,covering various scenarios of investors’ exit,which is extremely unfavorable for business founders.From the perspective of the inherent characteristics of strict performance betting agreement system and dynamic adaptation of startups companies,there are fundamental conflicts between the two systems.In conclusion,this study clarifies the meaning,category and attribute of performance betting,reveals the payoff-risk structure,exit process and systematic conflict in performance betting,laying the foundation for follow-up research.Second,capital market turbulence,government intervention and environmental uncertainty are the main external factors that impact the startup companies’ performance betting.China is in the process of rapid economic development and industrial transformation and both the public service and the business sector are learning by trial and error.Therefore,startup comapnies are in a highly uncertain business environment with high complexity and difficulty in performance betting.The inherent institutional defects of the capital market cause frequent negative volatility,which affects the financing of startup companies and then have a negative impact on the startup comapnies’ performance betting and IPO betting.Government intervention,including industrial stimulation and government regulation,distorted the market mechanism of supply and demand and the competition structure of the industry,and had a complex impact,making business newcomers risk losing their performance betting.Meanwhile,the rapid development of technology and the uncertainty of market demand have brought great impact on the operation of startup companies.In addition,excessive market speculations with disordered competition make the external business environment very challenging to startup companies.The harm of external factors is often irreversible,significantly impact on the performance betting of startup companies.Third,under performance betting,the business founders’ overconfidence and investors’ involvement affect the performance of startups comapnies.In many case studies of performance betting,business founders’ overconfidence is a frequent phenomenon and the conflict between founder and investor also leads to startup companies’ failure in performance betting.After reviewing literature and pratical cases,venture capital investors’ involvement in startups can be basically divided into two categories: managerial involvement and strategic involvement.For startup companies,although investors’ managerial involvement can bring necessary experience and professionalization of management,it often leads to conflicts with the founders and as a result affects businesses’ performance,which has been fully confirmed in many cases of performance betting.On the contrary,the strategic involvement of venture capital investors,such as investing in strategic financial resources,expanding business network,integrating business resources,and providing strategic advice to businesses,has a positive impact on the operation and development of the startup companies.In addition to the case study,data from a survey also support the observation mentioned above.Specifically,the founder’s overconfidence has a negative impact on the performance of startup companies,the management involvement of investors has a negative impact,and the strategic involvement of investors has a positive impact.Fourth,the dynamic capability of startup companies explains the relations between decision-maker’s behavior and business performance,explaining the root cause of startup companies’ difficulties in performance betting.Being extremely sensitive to environmental changes is the characteristics of startup companies,while participating in performance betting and accepting strict financial terms aggravate the risk of startup companies’ risk exposure.To succeed in the performance betting,startup companies must have the ability to adapt to the dynamic environment.This study constructs a model of "critical decision-makers’ behavior to performance of startup companies through dynamic capabilities" under performance betting and makes a survey by using the Structural Equation Model.The data analysis supports the following hypothesizes: business founder’s overconfidence and the venture capital investors’ managerial involvement weaken separately the dynamic capability of startup companiess under performance betting,venture capital investors’ strategic involvement enhances the dynamic capability of startup companies,and startup companies’ dynamic capability has a positive impact on the business performance Here,the dynamic capability of enterprises explains the startup companies’ difficulties in performance betting.This study enhances the research of dynamic capability in the field of business venturing,and has important implication for organizational learning and dynamic capability building of new startup companies in dealing with performance betting.In conclusion,this study makes a systematic study of structure,factors and mechanisms of performance betting under the perspective of business founders and has made some theoretical contributions.There are four contributions of this study in the following aspects:(1)From the perspective of business founders,this dissertation classifies different types of performance betting and analyzes their risk-benefit structure,which enhances a systematic cognition of performance betting;(2)this dissertation discovers internal and external factors affecting the performance betting of startup companies and related dynamics underneath;(3)this dissertation constructs a intermediary model of dynamic capability of startup companies under performance betting,which reveals the root cause that lead to the performance of startup companies participating in performance betting and enriches researches of startup companies’ dynamic capability.In summary,this dissertation provides a systematic explanation for the startup companies’ difficulty in performance betting from the perspective of business founders and bridges the communication of various academic disciplines,expanding and deepening the theoretical research of business venturing.Therefore,this study has explored a theoretical frontier and provided practical guidance to practitioners.