Growth strategies of startups are examined based onthe role of rounds of venture capital financing. Three aspects of venturecapital financing are investigated: (1) whether financial resources constrainthe growth of startups and whether rounds of funding unbind this constraint;(2) what the role of financial resources are beyond being just commodities andas determinants of the growth strategies of startups; and (3) the role offinancial resources as signaling indicators within a company. Information was collected from the payroll information database of thecompany studied (Trinet) for the time period January 1994 through May 2000 andincluded 606 entities. To identify firms that received venture funding,VentureOne and Venture Source databases were used. There were 194 firms thatappeared in both the Trinet and at least one of the Venture databases. Results indicate that the role of venture capital rounds changes over thelife of startups. Also, financial resources significantly constrain the growthof young, high-growth companies in the early part of their development. Theamount of funding shapes the growth strategy of a company and venture capitalfirms, through the funding they provide, affect the growth strategies ofstartups. For managers, the criteria for selecting a venture capitalist shouldinclude not only the reputation or amount of funding secured, but also anunderstanding of the strategy that the intended venture capital firm expects topromote. (JSD)
