The importance of management control systems for startup funding – empirical evidence from external financiers

• Published in: Journal of accounting & organizational change 2021-10, Vol.17 (5), p.660-685
• Main Authors: Schachel, Hanna, Lachmann, Maik, Endenich, Christoph, Breucker, Oliver
• Format: Article
• Language: English
• Subjects: Business models; Cash flow; Collateral; Debt financing; Decision making; Employees; Entrepreneurial finance; Entrepreneurs; Equity financing; Investors; Management controls; Startups
• ISSN: 1832-5912; 1839-5473
• DOI: 10.1108/JAOC-07-2020-0089

Purpose This study aims to examine which categories of management control systems (MCSs) in startups are most important to external financiers. Furthermore, this paper investigates how equity and debt financiers differ in their perceptions of MCS categories and examines the relevance of MCSs for their investment decisions. Design/methodology/approach This study collects data through a cross-sectional survey sent to equity and debt financiers actively investing in startups. The results are based on survey responses from 73 financiers. Findings The results show that financial MCSs are considered most important, followed by strategic MCSs, while human resources MCSs are perceived as only moderately important. This paper finds significant differences in the perceived importance of MCS categories between equity and debt providers, which can be explained by differing risk profiles and monitoring needs. Although debt financiers consider financial and strategic MCSs to be less important for their portfolios’ startups than equity financiers do, debt financiers perceive MCSs as more important for their initial investment decisions. Originality/value The study sheds new light on the importance of different MCS categories in startups by analyzing external financiers’ perceptions. Overall, the empirical study provides insights that are particularly valuable for startups seeking external financing for company growth.