Entrepreneurial finance: Paving the way for a transformative future

This article is part of the ‘Inspiring Transformations’ series promoted by Esade Entrepreneur Institute for its 30th anniversary. 

Entrepreneurial finance plays a pivotal role in the evolution of new businesses and innovative ecosystems. As the world undergoes a rapid transformation fueled by technology and socio-economic changes, entrepreneurs and investors become pioneers in navigating this new landscape. Access to finance, understanding of market mechanisms, and the ability to capitalize on emerging opportunities are vital components of the entrepreneurial journey.  

To harness these elements effectively, research in the field of entrepreneurial finance is expected to provide further insights and solutions to problems that not only concern the business realm but also have societal implications. However, realizing the full potential of entrepreneurial finance requires overcoming critical challenges. 

Research on entrepreneurial finance has business and societal implications alike

Two issues stand out requiring urgent attention from researchers in this field: promoting diversity and equality and integrating emerging technologies into entrepreneurial finance practices.  

1. Diversity and equality

Diversity and equality are crucial issues in entrepreneurial finance. Future research should not merely aim to quantify the gap in funding among different demographic and underrepresented groups but identify structural biases, comprehend the nuances of funding diverse businesses, and ultimately, devise strategies to level the playing field.  

Promoting diversity and equality in entrepreneurial finance can lead to a new wave of innovative businesses, reflecting a broader spectrum of human experiences and perspectives. Furthermore, the multiplicity of viewpoints in decision-making processes could lead to better risk management, opening avenues to explore novel markets and client bases. This equitability does not only mean better business but signifies a societal transformation, reinforcing the ethos of equality and inclusivity.  

2. Emerging technologies 

As the frontier of technology pushes forward, the ramifications in entrepreneurial finance are profound. AI and machine learning can revolutionize how entrepreneurs access funds, how investors evaluate ventures, and how financial markets respond to new business activities.  

New technologies can democratize finance and reduce biases in funding allocation

Powered by AI, predictive analytics can provide insights into venture viability, risk factors, and potential returns, enabling more informed investment decisions. Moreover, these technologies have the potential to democratize entrepreneurial finance. They can analyze non-traditional data sources to uncover promising ventures overlooked by traditional methods and reduce bias in funding allocation.  

In addition, automating routine tasks can free up human capital to better support business owners. Future research could demonstrate how emerging technologies can benefit entrepreneurs and investors by removing obstacles.   

Horizons of finance research

Entrepreneurial finance research stands at the crossroads of business, society, and innovation. By focusing on the tenets of diversity and equality, it seeks to usher in a new era of inclusive entrepreneurship. For example, research can uncover biases in fundraising and propose new evaluation frameworks. By integrating emerging technologies, entrepreneurial finance looks forward to a future where finance is not just a tool but an intelligent partner. 

As we march ahead, the contributions from this field are poised to sculpt a world where entrepreneurship drives economic prosperity, societal transformation, and global progress.  

Recommended readings

Diversity and equality:  

• Gornall and Strebulaev (2023): Gender, Race, and Entrepreneurship: A Randomized Field Experiment, Management Science, forthcoming. 
• Wang et al. (2023): Social Media Alleviates Venture Capital Funding Inequality for Women and Less Connected Entrepreneurs, Management Science, forthcoming. 
• Fairlie et al. (2022): Black and White: Access to Capital Among Minority-Owned Start-ups, Management Science, 68(4), 2377-3174. 

Emerging Technologies:  

• Blohm et al. (2022): It’s a Peoples Game, Isn’t It?! A Comparison Between the Investment Returns of Business Angels and Machine Learning Algorithms, Entrepreneurship Theory and Practice, 46(4), 1054–1091. 
• Bonelli (2023): Data-Driven Investors, Working Paper. doi: 2139/ssrn.4362173 
• Lyonnet and Stern (2023): Venture Capital (Mis)Allocation in the Age of AI, Working Paper.