The nature and role of early stage equity financing in the development of emerging entrepreneurial ventures in the software industry is examined. To provide an understanding of the relationship between the suppliers of capital and the ventures they bankroll, issues concerning equity positions and holding periods are addressed. Given the unique position of private investors in the early stage equity market, particular attention is given to the characteristics of these investors and the investor characteristics germane to the software industry. Results for the software sector are compared with technology-based companies in an attempt to uncover any discernable differences between the two groups. The research hypothesizes that there are differences in the informal venture capital market among broadly defined sectors in terms of the sectors' technology and competitive conditions and their impact on: first, the need for, and timing of, external equity capital; and secondly, the characteristics and value-added contributions of the private investors attracted to the sector.
