Table 7 shows the values of various sources of funds and their percentage in the total start-up
capital. The data shows that 66.37% of the start-up fund came from individual investments,
24.94% from direct relatives and friends of the founders, 8.35% from social fund raising or other
resources, and only a negligible 0.34% from banks.
T able 7 Sources of s tart-up funds of 118 shoemaking enterprises
|
Start -up |
Founder |
Direct relative |
Relatives |
Merchant banks |
Public fund |
Others | |
|
Weighted |
1970.11 |
1307.48 |
287.00 |
204.40 |
6.79 |
43.58 |
120.86 |
|
Weight |
100.00 |
66.37 |
14.57 |
10.37 |
0.34 |
2.21 |
6.14 |
Note: All the initial investment value are deflated by the price index of fixed capital investment of Zhejiang
province, which is obtained from Zhejiang Statistics Yearbook and China Statistics Yearbook.
Source: calculated according to the data collected by author’s field survey.
Two aspects of the above results are worth noting: without formal financial support,
Wenzhou shoemakers mainly relied on their own funds for start-up capital; most informal start-up
capital came from relatives and friends while the more generic and market -oriented informal
finance channels, such as public fund raising, were seldom used13. We find that the enterprises
preferred to borrow from relatives and friends (44.29%), followed by banks, accounting for 20%,
then by those who raised funds through direct relatives, which only makes up 10.71%, and finally
those choosing social fund -raising, which was used minimally.
We now proceed to analyze how these enterprises overcame working capital difficulties.
Table 8 shows the number and proportion of enterprises with different preferred channels when
they need working capital.
Table 8: Number and proportion of enterprises using different preferred channels to
raise funds
|
Preferred |
Direct relative |
Relatives or friends |
Merchant |
Public |
Others |
No |
Total |
|
Number of |
15 |
62 |
28 |
4 |
16 |
15 |
140 |
|
Percentage |
10.71 |
44.29 |
20.00 |
2.86 |
11.43 |
10.71 |
100.00 |
( % )
Source: Based upon authors’ field survey.
What is the reason behind this? Further analysis shows that fund raised from direct relatives
usually do not bear interest and have no definite payment deadline unless otherwise specified.
Since the fund can also be used by the borrower for a relatively long period, such funds are often
used for start -up capital or ramp -up capital expenditure . When working capital is required,
13 Table 7 shows that, among the 118 enterprises, only 6 used proceeds raised from public channels, accounting for
20%-67% in their initial investments respectively.
12