Introduction
E-commerce new
venture performance:
how funding impacts
culture
R.H. Hamilton
The author
R.H. Hamilton is an Assistant Professor of Management at
Georgia State University, Atlanta, Georgia, USA.
Keywords
Internet, Venture capital, Entrepreneurialism,
Corporate venturing, Corporate culture
Abstract
New venture ``startups'' are financed via three standard
methods: self-funding, ``friends and family'' or possibly
``angel'' investors; seed capital from venture capitalists; and
large corporations' venture funds. Each of these financial
structures has its own set of risk and reward trade-offs.
Corporate venture funding has been seen as the least risky
funding method, but also the least likely to be available for
the entrepreneur. Each of these funding methods is likely to
engender a different kind of corporate culture that could
impact the e-commerce venture's long-term development.
The self- or privately-funded company must continuously
scramble for scarce funds and may not be able to develop
internally the necessary culture of knowledge creation.
Companies supported primarily by venture capitalists may
develop a culture that over-focuses on quick return of capital
to investors. Alternatively, the slow decision-making
processes of large corporations are often antithetical to
Internet time.
Electronic access
The research register for this journal is available at
http://www.mcbup.com/research_registers
The current issue and full text archive of this journal is
available at http://www.emerald-library.com/ft
Internet Research: Electronic Networking Applications and Policy
Volume 11 . Number 4 . 2001 . pp. 277±285
# MCB University Press . ISSN 1066-2243
277
E-commerce firms have been whipsawed over
the last year or so. Dot-coms, whether ``B2C''
or ``B2B,'' are no longer favorites on Wall Street
or Main Street. To be sure, many possibilities
still exist for new ventures in the e-commerce
world. But the good old days of 1999 are gone,
probably for ever. No longer can e-commerce
firms step up and get millions of dollars of
venture capital money for a ``good idea on the
back of a napkin'' that has no prospects for
revenues as far as the eye can see. In part the
reason for this is the collapse of the over-
inflated NASDAQ market. When in March
2000 Palm Inc. as a tracking stock was valued
more than the underlying assets of 3com,
anyone with sense knew that the wild funding
parties would soon be over.
Prior to ``Humpty Dumpty's great fall,'' the
search for the great windfall IPO created a
mindset in many e-commerce firms far removed
from the classic desire for firm competitive
advantage. The goal was simply to convince
venture capitalists on Sand Hill Road (or
perhaps in Silicon Alley, off 128 in Boston, or in
dozens of other cities in North America) that
you had a business worth a ``high valuation''
and that the business could be ``flipped'' in the
stock market. The problem was, not only were
the business models that resulted from the
agreements between venture capitalists and
entrepreneurs often unsustainable, but also
many of the models didn't even make sense (for
example, boo.com).
What was noticeable, however, in the
maelstrom created by the NASDAQ bubble
was that the sense of ``Internet time'' ± which
many of us had come to recognize as a given
with regard to technology change ± had
morphed in the nascent Internet firms into a
general way of doing business. ``Faster, faster!
Be first on the market! Capture all of the share!
Upgrade now! Change the model now!'' The
cry went on relentlessly in many firms, creating
zigzag strategic changes, back and forth with
blinding speed. The truth was that firms ± and
their venture capitalists ± heard the IPO
biological clock ticking incessantly in the
background and feared that they might not be
able to cash in on the bonanza.
 E-commerce new venture performance: how funding impacts culture
R.H. Hamilton
Thus, the funding sources Internet firms have
utilized have in part brought on a number of the
problems we have seen in the dot.com world.
The prototypical e-commerce firm almost
invariably has made early use of venture capital
money, but often this has created a pressurized
culture, which in turn has made the decisions of
the new firms much more risky and rushed.
However, venture capital funding is not the
only way to fund startups. In fact, for most
startups outside e-commerce (and certainly for
those outside technology), other forms of
funding are far more prominent.
This paper will explore the three primary
methods of funding for e-commerce startups
and the impact that funding criteria have had
on the resulting organizational cultures. Given
that in the strategic management literature an
effective corporate culture has often been seen
as a precursor to strategy implementation and
execution (Thompson and Strickland, 1995),
we can also expect that the resulting cultures
will impact the ultimate strategic success of the
firm. In any case, cultures are likely to vary
strikingly based on firms' methods of funding.
Methods of start-up funding
According to the classic entrepreneurial
literature (Stolze, 1999; Longenecker et al.,
2000) there are three primary funding
mechanisms for startups: self-funding from the
entrepreneur's personal resources and ``friends
and family''; funding from venture capital firms;
and funding from larger corporate and
governmental agencies. Additionally, there are
``freelance'' funders who use their personal
capital. Frequently such ``angel'' investors are
successful former entrepreneurs who wish to
reinvest their capital in another promising
business (Harmon, 1999). Classically, self-
funding occurs early on in a business's lifecycle,
while venture capital funding comes later after a
business has proven its worth (Stolze, 1999).
An angel investor usually acts as a bridge who
supports the business after the ``self-funding''
stage and before the venture capitalists invest.
(Some literature supports the angel investor as
part of the venture capital stage and some as
part of ``venture capital'' (Stolze, 1999;
Harmon, 1999), but for the purposes of this
278
Internet Research: Electronic Networking Applications and Policy
Volume 11 . Number 4 . 2001 . 277±285
review, angel investors will be seen as part of the
self-funding phase, since the values of the angel
tend to be more in alignment with the
entrepreneurial spirit than with that of venture
capitalists). Corporate investment can take
place prior to venture capital or after it (Stolze,
1999; Christopher, 2000), although corporate
investment is rarely the initial funding source
unless the business has begun as part of a spin-
off of a prior product or service of the
corporation (Chesbrough, 2000). Moreover,
most startups are not able to pursue corporate
investment. Typically, corporate investment
only occurs if there is a long-term strategic
interest of the corporation in the development
of the technology or services of the
entrepreneurial firm. For any business, there
are gradations and shades of funding which
belie a neatly discrete categorization. However,
the general outline of ``self ? venture capital ?
(possible) corporate ? (possible) IPO funding''
held true for many years.
This outline changed in the late 1990s, when
e-commerce firms and their supporters seemed
to herald a ``new era'' of venture funding.
E-commerce firms were seen as having ``zero
gravity'' as opposed to those ``heavy gravity,''
asset-oriented, brick-and-mortar firms
(Harmon, 1999). Thanks to the Netscape IPO
and others that created instant billionaires, the
classic long-term process of self-funding to
angel-funding to venture capital-funding was
inverted. Post-Netscape, venture capitalists and
entrepreneurs began to believe (in retrospect,
quite wrongly) that instant liquidity could
always be available in the capital markets thanks
to the seemingly insatiable demand for Internet
stocks, and (even more wrongly) that
e-commerce firms were inherently, and near-
infinitely, scalable. As a result, by 1999, venture
capitalists began to short-circuit the traditional
process of funding by getting in at earlier and
earlier stages. Some venture capitalists began to
cut checks on the basis of back-of-the-napkin
business plans (Harmon, 1999). All this was
done to ensure first-mover status in the
marketplace, with gigantic, imminent IPOs
dangling like carrots as incentive.
However, this practice was not always good for
entrepreneurial firms, and ultimately not for
e-commerce in general. The corporate cultures
that evolve as a result of self-funding are quite
 E-commerce new venture performance: how funding impacts culture
R.H. Hamilton
different from those that result from venture
capital funding. In some cases, particular
corporate cultures have stimulated the feeding
frenzy and have influenced if not caused
corporate failures in the year 2000. In turn, those
failures have influenced the overall decline in
public perceptions about e-commerce in general.
The next sections will profile in depth how each
funding source potentially impacts corporate
culture and strategy execution.
The self-funded firm's culture
The self-funded e-commerce firm is rarely
profiled in the trade press. Perhaps this is
because over the last two decades in the
heartland of technological innovation, Silicon
Valley, venture capital funding has become a
deeply ingrained tradition. More
fundamentally, it is rare when a self-funded firm
can grow large enough to be noticed. Most
entrepreneurs do not have available the kinds of
resources necessary to gain any kind of
notoriety (let alone buy a TV commercial).
Venture capital is necessary for any kind of scale
to be developed. Nonetheless, the vast majority
of e-commerce-related firms are primarily self-
funded. They might be operating in niches like
local Internet access, Web development,
e-consulting, or Web-hosting. Without such
relatively small businesses plying their trade, it
is likely that the spread of Internet technology
would dramatically slow, especially in North
America. It is these firms that are developing
Internet infrastructure in the small-to-medium
sized businesses that are the heart of our
economy.
Self-funded firms tend to be formed from a
particular entrepreneur's vision, filling a need
where the entrepreneur has specific skills or
resources. These entrepreneurs are the classic
``bootstrapping'' types, often using credit cards,
second mortgages, or retirement funds to bring
a dream alive. Frequently family members chip
in a sizeable amount of cash. If the business
begins to grow, a self-funded firm might finance
that growth through equipment-leasing or a
bank loan (although banks are not fond of
lending where there is excessive risk, which
usually typifies a startup). Often the self-
funding firm ``factors'' its receivables (sells them
279
Internet Research: Electronic Networking Applications and Policy
Volume 11 . Number 4 . 2001 . 277±285
to a third party at a discount), since that
provides it with ready cash.
The daily priority for the self-funded firm is
to increase sales. There is no alternative to that
choice: everyone in the self-funded firm must
be a salesperson or at least think like a
salesperson (Stolze, 1999). Ultimately,
``growing'' really means ``selling'' since any
other ways of making the firm larger are
precluded. Of course, this means the self-
funded firm is perched on a cliff: if sales stop or
even slow significantly, then the firm could
cease to exist.
The strategic focus of the self-funded firm is
to insure profitability through cost
containment. Simply growing revenues is not
enough. If its sales are unprofitable, the firm
cannot be sustained. Thus, a self-funded firm is
likely to ``make do'' with used furniture, a non-
prime location, or less than state-of-the-art
equipment. In order to keep prices low enough
to attract sales yet keep salaries high enough to
attract quality personnel, ``something has to go''
in order to have profits. This focus on cost may
hinder the development of knowledge creation,
which is essential in a changing Internet
environment. Knowledge creation takes a good
deal of time, resources, and necessary
coordination between personnel. But focus on
such future-oriented issues may not be relevant
for a firm that is worried about its existence.
The culture of the self-funded firm tends to
be ``family-oriented'' with transparent politics.
While some firms may fit the profile of a
``dysfunctional'' family, even in these it is
virtually impossible to hide what is going on;
the grapevine is too pervasive for long-term
secret-keeping. On the positive side, most self-
funded firms do try to keep a relaxed
atmosphere and take into consideration the
personal needs of their employees.
Additionally, self-funded firms tend to care
about all of their stakeholders: customers and
suppliers as well as employees and owners,
allies, and even some competitors. This is
largely because troubles with any of those
stakeholders could yield great difficulties for the
firm. Particularly in areas such as e-consulting
or Web design, employee well-being, skill level,
and positive attitude is crucial to success. On
the other hand, failures by suppliers in areas
such as bandwidth provision can wreak havoc
 E-commerce new venture performance: how funding impacts culture
R.H. Hamilton
with completing customer projects. Networking
with stakeholders, therefore, must be extensive.
The entrepreneur of the self-funded e-firm
tends to be peripatetic, going to industry
meetings in part to keep up with changes in
technology and the marketplace but also to
develop relationships that can be relied on for
help and advice when challenges or difficulties
arise.
The self-funded e-firm faces constant threats
from the external environment: will customers
grow fickle? Will technology change? Will the
firm become irrelevant and extinct? But the
biggest negative aspect of self-funding an e-
commerce firm comes from the knowledge that
the firm cannot grow fast and may not have the
resources to keep up with market changes. The
most significant positive aspect of the self-
funded firm is that frequently there is a feeling
among the employees that ``we are in this
together.''
Venture capital funding
As suggested earlier, more venture capital firms
are funding startups at an earlier stage than
previously. To be sure, every firm is at some
beginning level ``self-funded''; but the question
is how early venture capital involvement is
pursued. A firm that is self-funded for years
before seeking venture capital help may be able
to sustain its self-funded culture. On the other
hand, a firm that seeks venture capital funding
very early in its history will be more susceptible
to the venture capital-type culture. The typical
example of a venture capital-funded startup
would be a classic ``B2C'' or ``B2B'' business
such as e-Bay, pets.com, or chemdex.com.
The key concern with an early venture capital
pursuit is that it tends to move the firm from an
orientation toward ``sales'' to a focus on
``valuation.'' Rather than concentrate on getting
customers, many e-commerce startups focus on
getting a large valuation in order to obtain the
largest amount of venture funding for the least
amount of equity. For example, a firm ``valued''
at $9 million would be able to get an additional
$1 million in funds for 10 per cent equity in the
firm (the total value of the firm increasing to
$10 million following the venture cash
infusion). The problem is that valuations of
280
Internet Research: Electronic Networking Applications and Policy
Volume 11 . Number 4 . 2001 . 277±285
startups by venture capitalists tend to be
somewhat subjective. Typical criteria include
management team ``quality'' (which often
means, ``do the venture capitalists know
members of the team?'') along with whether the
business model fits with the current ``fad'' of
Internet investors (such as ``B2B'' in 1999 or
``infrastructure'' in 2000) and how easily the
message is ``packageable'' to future investors.
Practically, this means that startups focus on
getting particular ``names'' as part of the
management team (rather than individuals with
complementary skills and personalities), on
pitching their business model as an example of
the current ``fad'' (whether it really is or not),
and on crafting a polished PR/communication
message rather than selling product.
The strategic focus of the venture-funded
e-commerce firm tends to change significantly
over time. Naturally, part of the reason for this
is to keep up with changing customer needs, but
frequently it is to position the firm on the
``cutting edge'' of business models in
e-commerce for the benefit of Internet analysts.
Again, ``valuation'' concerns come into play.
Additionally, being on the cutting edge often
means collecting alliances. Some of these
alliances are an important filling-out of the
complementary resources necessary for effective
marketplace positioning (Grant, 1998). Other
alliances simply appear to be a method to win
publicity and credibility-by-association with
partner firms. The right alliances can present
the image that the firm is keeping ahead of
trends. Of course, frequent partner changes can
also mean a zig-zagging strategy.
A daily orientation of the workers in a
venture-capital-funded firm is on ``stock
options.'' This is particularly true in a firm that
is perceived by employees as ``close to IPO''
when the employees may get some liquidity for
their holdings. However, for employees in the
venture-funded firm, the actual number of
options held by some members of management
may be a closely-guarded secret based on the
board of directors' and the top management
team's perception of the importance of those
individuals to the success of the enterprise.
Again, there may be some subjectivity in this
evaluation.
With regard to stakeholders, the venture-
funded firm tends to focus on those
 E-commerce new venture performance: how funding impacts culture
R.H. Hamilton
stakeholders who bring funds into the
organization. Some CEOs spend their entire
available time networking with possible funding
sources. In particular, customers and suppliers
may not get the same support as in a self-
funded firm because, ironically, these may not
be perceived as important to the success of the
organization.
Further, the valuation concern can create
complex political issues within the firm. Certain
decisions may be quite opaque to employees. In
general, valuations are a ``zero-sum game.'' If
the valuation of the firm is high, then the
founders and employees of the firm will get a
greater percentage of equity than the venture
investors. If the employees get a large chunk of
stock options, there may be less of a percentage
of the firm to give to ``second round'' venture
capital firms. On the other hand, management
may be required to receive fewer options to
enable employees and future investors to have a
greater stake. All of this means that, practically,
there is an inherent conflict between
stakeholders not seen in other forms of funding,
which sometimes results in employees being
kept in the dark.
The worst example of this has been a number
of recent firms that not only have not informed
key employees about lay-offs but also have
issued ``all is okay'' press releases up until the
lay-offs are a fait accompli. This could
conceivably happen in any firm, but the
temptation for the venture-funded e-commerce
firm to keep silent is very great. This is due to
the fact that both the top managers and the
venture capitalists are attempting to keep the
valuation as high as possible for as long as
possible. In an e-commerce firm the most
valuable asset is the knowledge base of the
employees, and firms do not want those assets
to walk out the door until absolutely necessary.
In addition, in order to cash out for the highest
possible price in an exit-strategy acquisition to
another firm, venture-funded firms want to
create as much of a sense of ``normalcy'' as
possible before the transaction is closed. While
top managers and venture capitalists are
shopping the firm, it would be awkward (but
perhaps more ethical) to tell employees that
their jobs are at risk.
As suggested earlier, ``angel'' investors are
sometimes classified with venture investors. But
281
Internet Research: Electronic Networking Applications and Policy
Volume 11 . Number 4 . 2001 . 277±285
``angels'' tend to be more on the entrepreneur's
wavelength than on the venture capitalist's
(Karlgaard, 1998). The angel investor is not as
likely to be concerned with specific equity
valuations. Instead, angel investors are more
likely to be enamored of the technology or
business model that the startups are
promulgating, or possibly with the personality
of the entrepreneur (Stolze, 1999). The angel
investment tends to be more long-term and
somewhat less liquidity-focused (Harmon,
1999). Thus, the culture of the organization is
more likely to reflect that of a ``friends and
family'' self-funded venture rather than the
venture-funded organization. However, in the
context of the NASDAQ run-up and crash,
some blurring of roles has occurred as some
classic ``angels'' have funded later stages of the
growth (Paparelli and Steele, 2000).
The best aspect of a venture capital-funded
startup is that there are sufficient resources for
the firm to grow fast (at least as long as the
start-up continues to meet venture capital
criteria). The startup has a chance to be a first
mover in the marketplace and to capture
``mindshare'' in their area of competitive
advantage. On the other hand, the worst aspect
of a venture capital-funded venture is that
employees sometimes feel that they were ``over-
promised''; they were hired with the belief that
they were going to be part of a growing
company, with thoughts of a windfall dancing
in their heads. When reality hits, with stock
options ``underwater,'' the culture can turn
quite sour (as anyone can see by perusing the
posts of any of the failed-ventures Web sites).
Corporate funding
Corporate funding of startups, which had
lessened after the stock market decline of 1987,
began to grow dramatically during the late
1990s (Kroll, 2000; Etzel, 2000; Hyam, 2000).
Firms offering some of the funding for
e-commerce related startups include name-
brand firms such as Microsoft, Lucent, IBM,
Intel, Hewlett-Packard, Dell, Chase
Manhattan, Siemens, Visa, and SAP. Analysts
estimate that approximately 350 corporate
funds were established world-wide as of the end
of the year 2000 (Etzel, 2000; Hyam, 2000;
 E-commerce new venture performance: how funding impacts culture
R.H. Hamilton
Kapler, 2000; Moriarity, 1999). Part of the
reason for this fund growth was an expanding
economy during the 1990s that left
corporations flush with cash, along with a rising
stock market that offered greater liquidity. On
the other hand, some analysts believe that
corporations are interested in startups because
of the dearth of growth available in the future in
the corporation's main line of business (Etzel,
2000). Overall, corporations have had an up
and down relationship with funding
entrepreneurial startups; waves of funding
during the 1970s and 1980s ended after
downturns in the stock market (Chesbrough,
2000). Historically, corporate funding tends to
dwindle once high returns in the stock market
are no longer available. Tellingly, many venture
funds have considered corporate money as
``dumb'' money where the corporation pays
excessively (too much money for too little
equity) for a startup that is developing a
particular technology it is interested in pursuing
(Moriarity, 1999; Kroll, 2000).
Traditionally, corporate funding of startups
has focused on businesses begun or spun off
from the main enterprise. Alternatively,
corporations have sometimes funded businesses
in which they sought some strategic advantage
through the incorporation of the technology or
services of the startup into the ``parent'' firm.
More recently, there has been some blurring of
the lines between traditional corporate funding
and corporate ``venture capital'' funds;
however, most of these ventures still maintain a
``strategic'' focus in their investments
(Christopher, 2000). The basic principle
behind funding corporate-backed startups is
that the technology or business model that the
startup companies are developing is somewhat
outside the scope of the larger corporation's
intended resource allocations and core
competencies (Prahalad and Hamel, 1990) but
related to the overall strategic direction of the
firm.
Unless the business has started as an internal
project, in the USA most corporations do not
invest as a majority shareholder, since there are
potentially negative tax consequences for
greater than 20 percent ownership. However, if
a corporation has even 5 or 10 percent
ownership, it is likely to exercise considerable
influence. Moreover, more transactions are
282
Internet Research: Electronic Networking Applications and Policy
Volume 11 . Number 4 . 2001 . 277±285
occurring with corporate funders as the ``lead''
funding source. The cultural outcomes
discussed below are likely with any significant
corporate funding influence.
For most corporate-funded ventures, the
focus is on strategic germination. This is
somewhat different from the all-out growth and
alliance development of the venture-funded
firm. The corporate funded firm is often trying
to ``hatch'' technologies that fit strategically
with the sponsoring corporation as well as with
key customers and industries. Thus in the best
firms there is careful cultivation of the direction
of the technology development.
Not surprisingly, then, the daily orientation of
the corporate-funded firm is on technical issues
or developing technical excellence. Engineers
may be more prominent than marketers or
financial staff (either of whom are likely to be
far more prominent under other forms of
funding). Part of the reason for this orientation
is that there is less frenetic activity in a
corporate-funded firm. Corporate money tends
to be a bit more patient than venture capitalist
money, since the focus is on strategic
development, not on a liquidity event. Some
venture capitalists would say that is also
because the corporate money is ``dumb''
(Moriarity, 1999), with the backer not really
being knowledgeable about what the startup is
doing operationally and financially. Still, what
the corporation is usually interested in is the
technical expertise that the startup is
developing.
The biggest potential drawback of gaining
corporate money is the flip side of ``corporate
patience'': corporate money can be ensconced
in bureaucracy. While the corporation usually
takes a ``hands-off'' approach to startup
decision making, conversely, when corporate
input is necessary, it can take a long time for
those corporate decisions to be made, especially
if top management is not directly interested
(Chesbrough, 2000). The speed of corporate
bureaucracy is antithetical to the speed of
technology change. Perhaps the worst example
of this pattern playing out in e-commerce firms
can be seen in the failure of Toysmart. While
Toysmart made serious strategic mistakes,
these mistakes were greatly amplified by the
failure of Disney corporate management to lend
timely support (King, 2000). Ironically,
 E-commerce new venture performance: how funding impacts culture
R.H. Hamilton
according to Toysmart executives, the
proximate cause for Toysmart's failure was
Toysmart's inability to coordinate with
Disney's go.com portal and Disney's character
licensing group, both of which were stated
reasons for Disney's investment in Toysmart in
the first place (King, 2000).
Networking in the corporate-funded firm
tends to be with the ``corporate friends'' of the
funding corporation. In fact, access to
particular suppliers and/or customers is often a
reason that the startup wants investment by the
larger corporation in the first place
(Christopher, 2000). Startup personnel are
then able to bask in the reflected corporate
brand reputation, which they promote to
potential partners.
The politics of corporate funding are
generally translucent. They are not opaque as in
the venture firm, nor transparent as in the self-
funded firm. That is, there is relatively little
stakeholder conflict, but the parties do not
necessarily know all that is happening, either.
From far away, the startup can ``see light
shining'' in the offices of corporate
headquarters. Similarly, corporation knows that
``something is going on'' in the startup. But
there may be great differences in corporate
style, knowledge, and priority between the
startup and the funding organization.
Spin-offs are a special case of e-commerce
corporate funding. Ostensibly these have been
created to develop e-commerce activities
related to the parent firm away from corporate
bureaucracy, although some have been created
to take advantage of the rise in NASDAQ
and others to reap the tax advantages of
e-commerce versus a retail environment.
There have been some notable successes and
failures of these spin-offs, most notably
Microsoft's expedia.com or K-mart's
bluelight.com in a positive vein, and
Walmart.com's surprising early problems.
However, these firms tend to conform to many
points of the cultural framework described
above. In particular, while the spin-off is
designed to avert corporate bureaucracy, often
that bureaucracy has proven challenging to e-
commerce spin-offs, especially with regard to
Web site design and channel conflict. In
addition, once the spin-off has left the
corporate premises (often to offices in Silicon
283
Internet Research: Electronic Networking Applications and Policy
Volume 11 . Number 4 . 2001 . 277±285
Valley) the spin-off loses access to corporate
human and organizational resources.
The biggest potential benefit of working in a
startup funded by a corporation may be the
moderated money worries for the startup
(although those worries are by no means
completely eliminated). Given that the goal of
corporate funding is the development of
facilitating technologies, the greatest threat to
the culture would be a failure of that technology
to be efficacious.
Conclusion
Table I summarizes the findings of this paper,
presenting a comparison of the different
funding sources and likely cultural impacts. It
should be noted that these are generalized
categories; many firms will have some cross-
characteristics, in part because funding sources
are not fully discrete. Still, the greater the
prominence of the funding source, the more
likely there will be a gravitation toward that
source's type of culture.
The self-funded firm is typically a Web-
design firm, whose strategic focus is developing
profitability from each project. The daily
orientation of employees is on sales (developing
more business, increasing the number of
engagements), even for those who are not ``sales
people'' since their jobs depend on more sales
coming in. Self-funded firms interact with an
extensive series of stakeholders, including their
customers and employees, but also in many
cases systems integrators, programming houses,
recruitment firms, banks, lawyers, and others.
The biggest threat to the self-funded firm's
culture is the hostile external environment ±
competitors, the economy, changes in
technology, regulation, etc. ± which often
mercilessly buffets the self-funded firm, with no
``backup'' possibilities. There are many positive
examples of successful self-funded firms, but
also many examples of firms that fail, often
because they are unable to effectively manage
cash flow.
The venture capital-funded firm's strategic
focus is being on the cutting edge, often as a
``first mover,'' along with the continual
development of alliances to coordinate growth.
The daily orientation of employees ± especially
 E-commerce new venture performance: how funding impacts culture Internet Research: Electronic Networking Applications and Policy
R.H. Hamilton Volume 11 . Number 4 . 2001 . 277±285

Table I Cultural impacts of funding sources

Self-funded Venture capital funded Corporate funded
Typical firm Web design B2B, B2C ``Technology''; spin-off
Strategic focus Cost/profitability Being cutting edge; alliances Strategic germination
Daily orientation Sales Stock options Technical issues
Stakeholders/networking All (``help us!'') Funding stakeholders Corporate friends
Politics Transparent Opaque Translucent
Culture threat Hostile external environment Stakeholders Technology failure
Big potential plus We're in this together We grow fast Fewer money worries
Big potential minus We can't grow fast We were over-promised Corporate bureaucracy
Typical positive example Many E-Bay Bluelight.com
expedia.com
Typical negative example Many Pets.com Toysmart

those in a 1999-2000 dot.com ± is on the self-funded firms? Has the growth in

accumulation and status of their ownership
position as reflected in stock options. For the
venture capital-funded firm, some stakeholders
are ``more equal than others'' ± that is, those
who fund the venture are those who are listened
to (making them even more important than
relationships with customers). At the same
time, the greatest threat to the culture is
internal from those very same funding
stakeholders, or from internal squabbling about
particular ownership pecking order.
The corporate-funded firm's daily orientation
is often on technical issues, since the strategic
focus is on germination of new technologies and
support businesses for the corporate sponsor.
Thus, a failure of the technology to be
efficacious is the most serious threat to the
culture of the corporate funded firm. While
there are fewer money worries, corporate
bureaucracy can sometimes get in the way of
effective action.
Preliminarily, this research suggests that a
longer-term reliance on self-funding and
corporate-funding (if available) for e-commerce
ventures, could be appropriate. Future research
should consider a number of related concerns:
. What is the long-term impact of funding
choices in the e-commerce area? What are
the firm performance impacts (given that
there will be a great number of failures
under either scenario)? How long do the
positive characteristics of a self-funded
firm's culture last as the firm transitions to
different funding sources?
. Has the ``slowdown'' in venture capital
funding during 2001 resulted in more
284
corporate-funded firms slowed?
. Have the post-NASDAQ-crash venture-
funded firms' cultures changed? Has the
lack of immediate payback possibility hurt
or healed some of the stakeholder
relationships?
. Are corporate venture funds putting more
pressure for immediate performance on
their funded firms given the lack of liquidity
available and the overall slowdown in the
economy?
. Are there combinations of funding types
that lead to a more effective culture?
Given corporate culture's importance in
strategy execution (Thompson and Strickland,
1995, Peters and Waterman, 1982), it behooves
startups to carefully consider what kind of
culture they will create by how they acquire
their financial resources. In particular, while
there are pluses and minuses for any given
funding source, this research would question a
knee-jerk choice of venture capital funding for
e-commerce.
References
Chesbrough, H. (2000), ``Designing corporate ventures in the
shadow of private venture capital'', California
Management Review, Vol. 42 No. 3, pp. 31-49.
Christopher, A. (2000), ``Corporate venture capital: moving
to the head of the class'', Venture Capital Journal,
1 November, p. 1.
Etzel, B. (2000),, ``As NASDAQ swoons, corporate VC fills
financing gap'', The Investment Dealer's Digest,
16 October, p. 9.
 E-commerce new venture performance: how funding impacts culture
R.H. Hamilton
Grant, R. (1998), Contemporary Strategy Analysis, 3rd ed.,
Blackwell, Malden, MA.
Harmon, S. (1999), Zero Gravity, Bloomberg Press,
New York, NY.
Hyam, T. (2000), ``Corporates blaze the venture trail'',
Corporate Finance, September, pp. 16-19.
Kapler, R. (2000), ``There must be 50 ways to fix your
e-business'', USBanker, September, p. S27.
Karlgaard, R. (1998), ``Dollars from heaven: a choir of angels
bedevils the VCs'', Forbes, 1 June, pp. 23-6.
King, J. (2000), ``CEO: Partnership hurt Toysmart'',
Computerworld, 12 June, p. 116.
Kroll, K. (2000), ``'Dumb' is smart'', Industry Week, 12 June,
p. 27.
Longenecker, J., Moore, C. and Petty, J. (2000), Small
Business Management: An Entrepreneurial Emphasis,
11th ed., Southwestern, Cincinnati, OH.
285
Internet Research: Electronic Networking Applications and Policy
Volume 11 . Number 4 . 2001 . 277±285
Moriarity, G. (1999), ``The new smart money: once
considered dumb, corporate venture capital is now
sought by entrepreneurs'', The Investment Dealer's
Digest, 22 November, pp. 16-21.
Paparelli, C. and Steele, R. (2000), ``Start-up capital
recession'', Techlinks, Vol. 3 No. 6, pp. 20-1.
Peters, T. and Waterman, R. (1982), In Search of Excellence,
Free Press, New York, NY.
Prahalad, C. and and Hamel, G. (1990), ``The core
competence of the corporation'', Harvard Business
Review, Vol. 68 No. 4, pp. 79-91.
Stolze, W. (1999), Start up: An Entrepreneur's Guide to
Launching and Managing a New Business, 5th ed.,
Career Press, Franklin Lakes, NJ.
Thompson, A. and Strickland, A. (1995), Strategic
Management, 8th ed., Irwin, Chicago, IL.
Copyright of Internet Research is the property of Emerald Group Publishing Limited and its content may not be
copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written
permission. However, users may print, download, or email articles for individual use.