The role of venture capital in economic transition in Serbia

Abstract

Venture and more broadly private equity finance is in early stage development in Serbia, both in form of seed-capital financing for innovative small and medium size enterprises (SME) and private equity financing in growing companies. Banking dominates as a source of finance with significant drawbacks in terms of cost and required collateral, especially hampering potential growth of SMEs that constitute 99% of all businesses in Serbia. This article finds private equity investments made to date to have demonstrated positive results, confirming data from other, especially transition economies, presented in the introductory literature overview. In the mid-term, Serbia stands to benefit both from entrepreneurial private ventures and important regional initiatives supported by the European Union such as the Western Balkan Enterprise Development and Innovation Facility, whose innovation and expansion investment funds are expected to start operations in 2014. Serbia is also eligible for the new EU Programme for the Competitiveness of Enterprises and SMEs (COSME), which will have an equity facility, stimulating venture capital stream for SMEs. Education of local financial institutions and SMEs in Serbia about venture capital and investor readiness will be vital, facilitating the construction of project pipelines. In conjunction, the legal framework should be upgraded, both by enacting the amendments to the Law on the Export-Credit Agency (AOFI) and the Law on venture capital funds, accompanied by wider regulatory reform to improve the business climate and foster entrepreneurship.