Is anyone listening? Finance and the future of Tech SME's Goals, Challenges and Priorities

This papers seeks to analyse the important relationship regarding whether an adequate financing of tech firms can impact their ability to meet challenges and become successful success. An online survey methodology was utilised... [ view full abstract ]

This papers seeks to analyse the important relationship regarding whether an adequate financing of tech firms can impact their ability to meet challenges and become successful success. An online survey methodology was utilised for this consisting of 100 Irish tech firms and over 45 questions were answered by all businesses. The key areas which will be investigated in this paper consist of the following four topics: Business Goals and Challenges, Training and Development, Challenges and Priorities and finally Personal Insight and SME Services. Over 60% of the firms are in the software sector over 35% are 11 years or older, with 18% not yet 2 years old, thus providing a broad scale to investigate. There is a large scope of analysis available utilising this unique dataset of which little research has been undertaken in the past decade.

Background
Capital Structure refers to the manner in which different forms of finance are ranked and utilised by firms which can then be used when funding new ventures and projects. The three main financing sources available to companies consist of internal retained earnings, external debt & external equity (Myers 1984). It remains to be seen whether debt can provide a company with opportunities for greater economic success or if it hinders profitability (Ting 2012). The topic of capital structure has produced various findings and results over the years. Many of these are contradictory and often cause debate on how different finance sources should be undertaken and used, if at all. There are a variety of findings which show whether debt can have a positive or negative impact on the profitability of companies, but none are fully supported (Harris & Raviv 1991; Claudiu 2013).

Quintessentially the different sources of finance have unique positive and negative aspects meaning the best financing framework has been a contentious issue over the years (Cotei & Farhat 2009). A capital structure model's dominance can depend on a company's sector while other researchers have described how specific industry variables are less important than strategic or financial ones (Hall et. al 2000). Technology firms are different to most companies in that they possess very little tangible assets and instead possess intellectual resources and patents (Coleman & Robb 2012a). SME firms are also found to possess limited assets when it comes to seeking external finance (mac an Bhaird & Lucey 2009). Firms during the early stages are actually most likely to have financing problems due to restrictions (Westhead & Storey 2010). Subsequently this can relate to both SME and technology firms and are significant reasons why the sector's relationship with capital structure is expected to be different. There is little information regarding the financing of technology firms and so this paper hopes to shed new light on this critical area.

Rajan & Zingales (1995) claim that when analysing company size there is a strong link between the use of debt and larger companies. In reality, small companies have to allocate more capital on issuing equity and so are usually more leveraged than large firms. The belief that SMEs are more likely to have financing difficulties is supported (Engel & Stiebale 2013). This is to be expected as there is always trepidation with start-up firms regarding whether their product or service will be successful. Consequently, according to the pecking order considerations, the relationship between growth opportunities and leverage is predominately positive. Çekrezi & Kukeli (2013) find that firm prosperity is positively correlated to both the size of a company and also its asset turnover.
It is established that asset structure, age, size profitability, growth and also the industry are key determinants which can impact the capital structure.(Hall et. al 2000). Chen (2004) discusses how different variables can have an important issue in selecting a suitable capital structure. The most contentious issue concerning determinants and capital structure involves the aspect of company size, as some authors believe it to be very important while others state it is not significant at all. In relation to capital structure of technology firms, the research involves the sources of financing the firms utilise. New technology-based firms (NTBFs) can have a significant impact on the economy and long established companies alike (Acs & Mueller 2007; Storey & Tether 1998). This shows the importance of the technology sector. There is currently little research engaging the impact of capital structure on financial performance within technology companies. This point is supported by the findings that technology firms can draw upon strong amounts of both debt and equity finance during the start up year (Coleman & Robb 2012). While Berger & Udell (1998) found that technology firms and other industries finance themselves differently in different stages of their life cycle
initially through internal sources then eventually external sources. Recent studies have produced a smaller scale discussion regarding how technology firms actually finance themselves and new project. It is found that technology companies which can be described as either small, young or more focused on research than sales favour other forms of financing to bank debt, while firms looking to grow are open to utilising venture capital (Minola & Giorgino 2011). However In developed markets, a lack of expertise or differing interests can result in reduced financial support for smaller technology firms such as venture capital (Revest & Sapio 2010). Whether self financing is the main source available to initial start-up firms is still up for discussion particularly during the initial years of the technology firms.

Methodology
The survey was administered through email, which included a cover letter and also a web link to the questionnaire. The questionnaire was accessed through an online survey provider, in which the analytics could be tracked in a real time manner. a prerequisite for completing survey was that only the CEO, CFO, CTO, Chairman, Majority Owner, Founder, Managing Director / General Manager were asked to complete it. This would provide more robust data, due to the knowledge of the businesses which these roles entail, as opposed to a junior manager or sales representative. The research was completed in conjunction with Bank of Ireland and we gained access to their portfolio of tech firms based in Ireland, with some completing the survey as well as other firms based in areas such as the NDRC (National Digital Research Centre) in Dublin. Subsequently for the survey results there are 102 total firms providing results and they are currently being analysed after cleaning the data.

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SME, finance, Capital, Challenges, future, tech [ view full abstract ]

SME, finance, Capital, Challenges, future, tech