CorpFin Researchpap

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1 Technology and Innovation in Small Businesses Name University Course Prof. Name Due Date

2 Introduction Corporate innovation as a source of competitive advantage for small businesses is a leading issue attracting the attention of business and academics in disciplines such as management, marketing, accounting, economics and finance. Over the past decade, attention to corporate innovation has increased due to the availability of high-quality citation and patent data reflecting a firm's or country's innovative performance. In this context, it is important to determine how corporate finance is funded and incentivized to help small businesses realize opportunities quickly. Financial systems and markets have the ability to ideate, initiate, process, develop, grow and lead to technological innovation by small businesses. Policymakers, business professionals, social scientists, and investors are particularly interested in how market-based financial systems affect corporate innovation since these systems have an impact on small enterprises' long-term competitive advantage and national economies. Purpose of Research To create competitive advantages that can disrupt markets and compete with established enterprises, small businesses must rely on innovation. Small firms in this setting rely on a variety of tactics that offer symbolic entrance points for corporate finance. Small businesses can utilize a variety of alternative tactics to achieve a competitive edge and maximize their market potential through innovation. High-tech marketing lighting is one such alternate tactic. Here, tiny firms concentrate on choosing and putting into practice nearly ideal marketing plans. Small firms look for a certain group of clients or purchasers, whether they are actual or potential (Donald, 2019). Customers that share a common set of needs and who regularly consult one another while making decisions about purchases should make up the customer base. There are numerous ways to introduce corporate finance into this setting. The first requirement is to create novel goods and services. Small enterprises must spend up

3 to 15% of their income on R&D because the costs are so high. R&D investments, according to financial analysts, are by their very nature long-term and demand long-term cash flows. Thus, the cost of research and development cannot be high. Small business R&D expenses should not be included in the corporate financial structure because they are capitalized. Concentrating on the point of assault is another tactic. This suggests focusing on a certain market niche. The study of consumer behavior must be highly invested if niche markets are to be targeted. Small firms' primary point of attack in the modern business world is digital goods. Small businesses have recognized the need to modernize their marketing strategies by utilizing social media-based customer relationship management (CRM) products. Big data analytics and artificial intelligence technologies in this context demand substantial financial outlays. Because it connects small enterprises with markets and technology aficionados, the Internet is a fruitful medium. Small firms might meet with their target clients in an effort to identify their problems and provide solutions. All of these alternate tactics can aid small businesses in remaining competitive by preventing them from slipping behind the innovation curve. The significance of corporate financing for the internal operations of small enterprises is clear from the aforementioned example. There could be a huge variety of criteria for corporate finance. According to the Donald, (2019) research, technological advancement emerges as physical capital in the context of investments while innovation manifests as knowledge-based capital. The stage or phases of an economy's economic cycle or its degree of economic development determine how important innovation is to GDP growth in a particular country. According to Donald, (2019), technical innovation can account for up to 85% of a nation's economic growth. According to calculations by Dory (2016) the number of patents issued per person in a nation increases by one standard deviation for every 0.85% increase in GDP growth. From this vantage point, it is obvious that technical innovation is

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4 crucial to both the development of small firms and the progress of a nation. Financial economists are starting to pay attention to the significance of technological innovation in small enterprises. The goal of this study is to produce a monograph that evaluates and synthesizes the academic literature on how venture capitalists fund and influence corporate innovation in small enterprises. Because it is the primary source of funding for start-up companies involved in technical innovation, venture capitalism is interesting. Venture capitalists have a high risk appetite, in contrast to conservative banks. Small firms face risks from technological innovation, so like to share a fascinating study on how venture capitalists evaluate opportunity and risk (Dory, 2016). We anticipate that by doing this, the audience will be better able to understand current artistic trends and recognize the connections and distinctions among many contemporary topics. Literature Review High-quality academic conferences have concentrated on one crucial issue: how to effectively and affordably promote and incentivise business innovation. This is because academic literature on corporate innovation and finance is becoming more and more well- liked and significant (Dory, 2016). Corporate innovation is being emphasized at a time when studies have indicated that it is only a short-term issue that differs much from the motivation of ordinary labor (Ebebhoahon, 2015). According to Gangu & Sher, (2016) corporate innovation is a diversified, risky, and lengthy process that calls for considerable willingness, an adventurous spirit, and patience for exploration and trials, in contrast to conventional job activities that produce quick results and are carried out using established technology. new techniques and designs. However, Ebebhoahon, (2015) pointed out that innovative small businesses are susceptible to partial disclosure methods. Small enterprises in this way become opaque,

5 which results in persistent undervaluation. According to Kuratko et al. (2014), the nature of innovation processes and competitiveness-related strategic factors cause small enterprises to become opaque. As a result, information asymmetries, managerial myopia, and moral hazard are just a few examples of the various market frictions that small businesses that invest in new enterprises face. Gangu & Sher, (2016) demonstrated that the process of encouraging small business innovation needs to be streamlined in such a way that it encourages the firm to withstand early failures, achieve goals, and reap rewards by changing innovation processes to an explicitly experimental nature with new ideas. Success According to Harel et al. (2020), small businesses must make a commitment to timely feedback, offer job stability, and build long-term compensation plans in order to properly motivate employees to take long-term risks on innovation initiatives. matching agent productivity and performance. Jardon, (2016) gave an illustration of the motivation shareholders experience as actors to work more in order to provide better outcomes in innovation projects. Here, the researcher points out that shareholders can deploy incentive pay systems with long-term consequences, including, among others, stock options, golden parachutes, and option repricing. In terms of corporate innovation and corporate funding, the researcher's position has ramifications for the operational environment of small enterprises. Venture Capitalism Venture capital has been outlined by numerous academics. According to Harel et al. (2020), venture capital is money that can be used to invest in start-ups and small firms with high growth potential. Risk capital is another name for venture capital. According to Jenny, (2020), venture capital is a sort of funding intended to assist start-up enterprises and small organizations with strong growth potential in exchange for ownership or equity capital during the early phases of development. According to Jenny, (2020), venture capital is a type of financing used to invest in a firm with the purpose of funding its startup or expansion. Even

6 though Jardon, (2018) satisfy all of the venture capital definitions, start-ups, small enterprises, tremendous potential, and risk are common themes. To this regard, a number of academics have researched the benefits and drawbacks of venture financing for small enterprises. Due to the importance of business success, venture capital is highly sought after for the purchase of small firms and start-ups, according to Jenny, (2020). Venture investors pledge to give small firms and startups numerous helpful sources of advise and counsel in addition to financial support. The goal of transferring business skills is to prevent business failure, but more importantly, to grow the business so that it produces greater profits. Therefore, to assure the viability and growth of their investments, venture capitalists possess business skills in areas like asset management, human resource management, financial management, and commercial decision making. According to Jardon, (2018), venture capitalists provide a variety of supplementary services to small businesses, including active support, guidance on personal matters, tax planning, and legal counsel at a crucial stage of development. The goal is to launch the company with clarity and speed so that it can build up enough momentum to overcome any potential obstacles that may arise from pausing. Krause, (2023) pointed out that venture investors give modest, innovative start-ups in technology access to business contacts. Venture capitalists generally have some authority over local businesses and communities, making them knowledgeable about markets and business choices. In the context of corporate finance, Krause, (2023) talk about some of the hazards of venture capitalism. The researchers point out that through equity funding, venture capitalists would look to gain control of tiny firms that have particularly promising technological advancements. The board of directors will include venture investors, who will want significant voting rights. As a result, the overall vision and growth path will depend on the

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7 quantity of the small business venture capitalist's share. Venture capitalists will occasionally make substantial, aggressive investments into a tiny business to help determine its future. The majority of small enterprises that seek venture funding eventually achieve minority ownership status. The constructs and Influences of Venture Capital on Small Businesses' Technological Innovations Every step of a company's life cycle experiences technological innovation as an internal engine of long-term competitive advantage and economic growth (Laforet, 2019). Young, tiny, and rising companies have a strong motivation to seek out and invest in cutting- edge, disruptive technology as they establish themselves in the market. In industries where incumbents have already erected barriers to competition, incentives are a construct (Laforet, 2019). It is the new entrepreneurial company's duty to prove that it is a strong, independent business. A startup, however, has drawbacks due to its inexperience. A small firm will also lack the physical support necessary to be eligible for financial instruments from traditional lenders, such as equity, because it is only getting started or is still in its infancy. This indicates that the newcomer will experience few financial limitations that will restrict its investment alternatives. In this way, a startup will eventually stop truly exploring and putting its technological discoveries into practice to the utmost extent possible. Startups are often need to shut operations after an unsuccessful attempt (Yeoh, 2014). The topic of intellectual property has grown to be divisive. If they safeguard trade secrets and other sensitive information that gives them a competitive edge in the market, private, entrepreneurial small enterprises can occasionally safeguard themselves from common agency conflicts that arise between firm management, founders, and widely dispersed shareholders. So, in order to pursue technological innovation, small enterprises must primarily rely on corporate finance

8 from convenient and adaptable sources, such as venture capital. Depending on the terms of the financing, venture capitalists can have a number of effects on small business operations. According to (Laforet, 2019), the venture capital industry has recently been subjected to a variety of forces that have altered the structure, significance, and management of small firms as a whole. Small enterprises have become more visible and commercialized in the current business climate. As a result of technology advancement, small business administration becomes more scientific and professional. The success or failure of these small enterprises has a direct impact on venture capitalists' perceptions of corporate profitability. As a result, venture capitalists carefully consider the internal and external factors that ultimately shape the impact of these technology advancements in small businesses. The strategic planning of a business should take into account these aspects (Yeoh, 2014). To retain and enhance their competitive advantage, venture capitalists look to take advantage of these variables. To achieve corporate productivity and efficiency, this is done through altering business, management, and human resource processes. According to Jardon, (2018) venture capitalists want to have an impact on corporate finance in a number of areas, including the new corporate culture. A new perspective has emerged on venture capitalists. Previously, a controlling business oversaw the entire portfolio of technological advancements. Therefore, venture capitalists viewed infrastructure as a component of their work. Startup founders now bear the bulk of the management and accountability for the company. Partnership-based venture capitalist interactions are replacing these approaches (Jardon, 2018). Venture capitalists increasingly assert that they personally manage their investment portfolio, as well as the advantages and effects of their decisions. Therefore, venture capitalists are in charge of ensuring small enterprises' long-term financial stability and the efficiency of technological progress. Some venture capitalists and

9 economists are concerned that the current venture capitalism culture is sapping the potential for a Steve Jobs, Elon Musk, or Bill Gates to emerge from an upstart or one-man enterprise. Similar claims by other academics that present employers must deal with a new mindset governing venture capitalist initiatives have been made (Ebebhoahon, 2015). The venture capitalism ideology incorporates all of the resources required to draw in, inspire, and ultimately maintain chances for technological innovation (Gangu & Sher, 2016). An organization can show effective management and investment in cutting-edge technologies by adopting such a concept. A company under the influence of venture capital must unavoidably adopt the standard ideology that has been imposed upon it as the only means of receiving finance. According to Jardon (2018), a company or its founders must perform a rigorous cost- benefit analysis before turning to venture funding. From a global viewpoint, Jardon (2018) explores the effects of venture capitalism. The expectations of funding plans for creative small firms are governed by cultural norms, local precedents, and governmental regulations in the context of globalization. Businesses must therefore strike a balance between organizational goals, national laws and conventions, and the business environment as a result of growing globalization and the emergence of new markets (Dory, 2016). While achieving perfect symmetry is very unattainable, doing so will increase the financial/business plan's favorability with venture capitalists. Practical Application The diverse implications of venture capitalists in terms of funding and management philosophy content for the information revolution for innovative small businesses. This leads to difficulties in accessing similar funding programs. Unlike ever before, today's small businesses have unprecedented access to a wide range of information about the different types of venture capital. This is redefining how businesses conduct their business and therefore determining the success and productivity of technological innovation. The wrong

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10 funding philosophy or culture leads to high failure rates and disillusionment for emerging talent. On the other hand, various venture capital products and philosophies have enabled small businesses to shorten the innovation life cycle, increase customer satisfaction, and enter new micro-markets (Dory, 2016). These new corporate objectives can be used to gauge company success, which in turn influences financial projections. Small businesses anticipate higher productivity as well as newer, faster, and better venture-funded products. Given the different corporate finance requirements of venture capitalists, another implication is that small firms need to set up the company for an unpredictable future. The first step is to use the company's attractiveness to get a competitive edge over the rest of the industry. The first step in creating a competitive edge through technical innovation is learning how to examine a business to identify its advantages and disadvantages. These are the circumstances or elements that either boost a company's resilience or dampen its capacity for innovation. The first step in creating a competitive advantage is to recognize and comprehend a resource's capabilities so that a plan for its future exploitation may be chosen. From the perspective of venture capitalists, small enterprises might look acceptable. In this situation, the company will start by looking at and analyzing the resources and skills that allow it to execute on its core competencies. Future growth prospects and points are represented by energy. For instance, a business should submit patent applications for technological advancements as soon as possible to stave off pressure from dishonest venture capitalists. Small firms must also assess the capabilities and resource gaps that prohibit them from reaching their core competencies and failing to live up to the expectations of venture funders (Dory, 2016). These restrictions are the company's weaknesses, and the corporation needs to be aware of them as it gets ready for a potentially rocky future with venture capitalists.

11 Small firms will benefit from all of this analysis by being able to identify and pay attention to the organization's main weak signals. A corporation can give its non-linear thinking and vision fresh life in its journey toward innovation by paying attention to weak signals. Businesses will be able to identify emerging patterns in the venture capital sector early on, helping to define and mold the company's future. To identify early signs of shifting market trends and how they affect venture capitalists' funding philosophies, small firms must assess demographic changes, customer requirements and tastes, technology, political, regulatory, economic, and environmental forces. For instance, as noted in Gangu & Sher, (2016), venture investors are increasingly choosing to support sustainable, ethical, and environmentally friendly business ideas. Existing conflicts or uncertainty can be quickly discovered and have an impact on outcomes since a strategic strategy entails matching finance plans with corporate objectives. Small enterprises must therefore create more efficient innovation programs that complement the venture capitalist's overarching business plan. Conclusion Small enterprises have discovered that such possibilities are not always readily available after the initial thrill of receiving money from a venture capitalist. Small businesses require creative strategies that are specific to their corporate cultures, personnel skill sets, organizational structures, and business objectives. As a result, there is a feeling of ownership in the company, and the venture capitalist may pitch it in a positive and appealing light. Corporate finance strategy is a crucial link in the entire strategic chain of a firm. A corporation can connect its corporate initiatives to its commercial objectives by strategically planning their implementation. With a more contemporary strategy, organizations can realistically change their funding plans to take advantage of venture capital opportunities and

12 new business difficulties. Corporate finance strategy is crucial to an organization's ability to gain a competitive edge.

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13 References Donald, D. C. (2019). Smart Precision Finance for small businesses funding. SSRN Electronic Journal , 64 (14), 321–324. https://doi.org/10.2139/ssrn.3544442 Dory, F. (2016, July). DOE funding small businesses for clean energy innovation.. Fuel Cells Bulletin , 2016 (7), 10–11. https://doi.org/10.1016/s1464-2859(16)30187-0 Ebebhoahon, M. E. (2015). Funding Entrepreneurial Firms and Small Businesses and the Financing of Modernism Empirical Findings. SSRN Electronic Journal . https://doi.org/10.2139/ssrn.2670579 Gangu, N., & Sher, N. (2016). New Financial Tools for Small Businesses: A Commitment Mechanism to Secure Funding. SSRN Electronic Journal . https://doi.org/10.2139/ssrn.2804614 Harel, R., Schwartz, D., & Kaufmann, D. (2020, September 15). Funding Access and Innovation in Small Businesses. Journal of Risk and Financial Management , 13 (9), 209. https://doi.org/10.3390/jrfm13090209 Jardon, C. M. (2016). Human Capital as Source of Innovativeness in Subsistence Small Businesses. Journal of Technology Management & Innovation , 11 (3), 59–66. https://doi.org/10.4067/s0718-27242016000300007 Jenny, K. (2020). Funding small businesses: Business angels and venture capitalists. The International Journal of Entrepreneurship and Innovation , 6 (2), 123–124. https://doi.org/10.5367/0000000053966902

14 Jardon, C. M. (2018). Human capital as source of innovativeness in subsistence small businesses. Journal of Technology Management & Innovation , 11 (3), 59–66. https://doi.org/10.4067/s0718-27242016000300007 Krause, D. (2023). Funding Without Venture Capital: Exempt Offering Options for Small and Emerging Businesses. SSRN Electronic Journal . https://doi.org/10.2139/ssrn.4475699 Laforet, S. (2019). Process of innovation in small businesses. Innovation in Small Family Businesses , 53 (18), 276–289. https://doi.org/10.4337/9781781004180.00008 Yeoh, P. (2014, November 4). Implications of online funding regulations for small businesses. Journal of Financial Regulation and Compliance , 22 (4), 349–364. https://doi.org/10.1108/jfrc-02-2014-0012

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