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New Perspectives on Industrial Policy for a Modern Britain$
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David Bailey, Keith Cowling, and Philip Tomlinson

Print publication date: 2015

Print ISBN-13: 9780198706205

Published to Oxford Scholarship Online: August 2015

DOI: 10.1093/acprof:oso/9780198706205.001.0001

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Harnessing the Private Sector to Enhance Industrial Innovation

Harnessing the Private Sector to Enhance Industrial Innovation

Chapter:
(p.131) Chapter 8 Harnessing the Private Sector to Enhance Industrial Innovation
Source:
New Perspectives on Industrial Policy for a Modern Britain
Author(s):

Gordon Murray

Weixi Liu

Marc Cowling

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198706205.003.0008

This chapter explores the financing of small and medium-sized businesses (SMEs) through venture capital. Problems of asymmetric information, risk assessment, and the appropriation of rents (from innovation) often lead to a sub-optimal allocation of funding for early start-up firms. To address this ‘financing gap’, ‘hybrid’ venture capital schemes exist, whereby the state acts as a special limited partner and channels funds into capital constrained, but high potential, young enterprises through private sector venture capital firms. The chapter explores the efficacy of the Australian scheme through a comparative econometric study (1997–2009) of the performance of firms accessing funding from the scheme and those funded solely through private venture capital. It reveals significant support for the scheme, with Institute of International Finance (IIF) supported firms more likely to be start-ups in high technology-based sectors, and also more likely to access follow-on finance as their business grows.

Keywords:   venture capital, innovation, hybrid schemes, SMEs, financing gap

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