Cash, Coaching and Confidence: Venture Capital’s Power During Economic Crisis

Traditional business loans can become difficult or costly when banks are unstable, while young companies often lack the collateral, predictable income and financial history lenders expect.

A new study suggests that venture capital may give entrepreneurs more confidence to start businesses during a financial crisis, especially when conventional loans are scarce and investors bring more than money. The research paper, 'Venture Capital Financing in a Crisis Economy: Entrepreneurial Risk, Venture Creation, and Perceived Firm Financial Performance,' by Joseph Serghani and Hussein Trabulsi, was published in the Journal of Risk and Financial Management.

The researchers examined Lebanon, where the banking collapse that began in 2019 brought capital controls, liquidity shortages, currency depreciation, falling investor confidence and severe restrictions on business lending. These conditions have forced founders to consider financing arrangements that share risk instead of adding fixed repayment obligations.

Why venture capital matters during a banking crisis

Traditional business loans can become difficult or costly when banks are unstable, and young companies often lack the collateral, predictable income and financial history lenders expect. Equity-based venture capital offers a different arrangement: investors provide funding in exchange for an ownership stake, allowing financial risks and potential rewards to be shared.

Venture capital can still carry high costs for founders, including ownership dilution, greater investor involvement, tighter governance requirements and reduced managerial freedom. Its value may extend beyond cash because investors can offer strategic advice, management experience, professional networks, market credibility and closer oversight of business decisions.

The study brings together four financial and business theories to explain these possible benefits. The resource-based view treats investor knowledge, connections and management support as valuable business resources. Signaling theory suggests that backing from a reputable investor can make a young company appear more credible.

Tradeoff theory helps explain why equity may look safer when debt repayments create a high risk of financial distress. Pecking order theory usually places external equity behind internal funds and debt. Lebanon's crisis shows how that preferred order can change when loans are no longer realistically available.

What the researchers studied

The research used a cross-sectional online survey conducted between April and June 2026. Its final sample contained 392 Lebanese adults who were current or former entrepreneurs, business-minded individuals, or people considering starting a venture. Participants answered questions covering their views of equity-based venture capital, willingness to launch a business, personal risk aversion, expected financial performance and the coaching or mentoring associated with venture capital investors.

Nearly 74% of respondents owned or co-owned a business, about 65% had previously launched a startup or entrepreneurial venture, and 55% expressed a willingness to create another business. Men represented 52.7% of the sample and women 47.3%, with most participants falling between 26 and 45 years of age.

The questionnaire was reviewed by 20 finance and entrepreneurship specialists before the main survey. Researchers analysed the responses with partial least squares structural equation modelling and used 5,000 bootstrap samples to test the strength of the relationships. Their model explained 30.2% of the variation in willingness to launch a venture and 34.6% of the variation in perceived financial performance, giving it moderate explanatory power.

Risk sharing and mentoring strengthened the results

People who viewed equity-based venture capital positively were more willing to launch new ventures, producing a positive association of β = 0.361. The relationship grew stronger among respondents with higher risk aversion, with a moderating association of β = 0.401. For participants who were more cautious about uncertainty, sharing investment risk with an equity investor appeared more attractive than taking on fixed debt repayments.

Positive views of venture capital were also associated with stronger perceptions of firm financial performance, including profitability, revenue growth, asset efficiency and returns to investors. This was the strongest direct relationship in the model, at β = 0.487.

When respondents believed venture capitalists would provide useful guidance, industry knowledge, networking opportunities and management support, the association between venture capital and perceived financial performance increased, producing a moderating effect of β = 0.267. This suggests that entrepreneurs do not see venture capital as money alone; they also value investors who can help them make decisions and navigate unstable markets.

The researchers repeated the analysis using only the 254 participants who had previously launched a venture, and the findings remained unchanged. Positive perceptions of venture capital continued to be associated with willingness to launch a business and perceived financial performance, while risk aversion and investor mentoring retained their moderating roles.

Promising evidence with important limits

The results point toward practical lessons for entrepreneurs, investors and policymakers. Founders operating in credit-starved economies could consider venture capital as one financing option while carefully weighing shared ownership, investor influence and governance obligations. Venture capital firms may create greater perceived value by pairing funding with strategic guidance, industry expertise and professional connections. Policymakers could strengthen responsible investment through transparent co-investment programmes, investor protections and initiatives linking finance with entrepreneurial mentoring.

The findings must be read as evidence about perceptions and associations, not proof that venture capital causes companies to form or perform better. Data were collected once through self-reported questionnaires, while perceived financial performance was not verified through audited accounts, investment agreements or actual revenue records. Some respondents had never launched a venture, and previous entrepreneurial experience did not necessarily mean they had received venture capital.

Convenience and referral-based recruitment also mean the sample cannot represent every Lebanese entrepreneur. Lebanon's unusually severe banking and economic conditions make it difficult to assume that the same relationships would appear in other countries. Financial literacy, household wealth, government support and industry policies were not included as control factors, while differences among private, corporate and government-backed venture capital were not examined.