Young Innovative Firms Research Articles

The rules of courtship: What drives a start-up to collaborate with a large company?

Collaboration between start-ups and large companies can accelerate innovation and improve the performance of all actors involved. This study aims to analyse the factors that push innovative start-up entrepreneurs to enter into this type of alliance. To do this, we built a conceptual model based on the theory of planned behaviour (TPB). We used a quantitative method and collected data from a sample of 145 Italian startups. The model was then tested, using a partial-least squares approach to structural equation modelling (PLS-SEM). The results confirm the predictions of the TPB, namely that perceived behavioural control, subjective norm, and above all attitude, influence the intention of the start-uppers to collaborate with large companies. These results provide a twofold theoretical contribution by: 1) extending the TPB to the case under examination and 2) helping to explain the formation mechanisms of asymmetrical alliances between young innovative firms and large consolidated companies. This study further provides a practical contribution by indicating the levers that encourage the involvement of start-ups in open innovation programs and, at the same time, make entrepreneurs more aware of the mechanisms activated to involve them.

The impact of state support on the innovative activities of small and medium businesses in Kazakhstan

In conditions of geopolitical instability, there is no time for a gradual transition, our country needs clear pushes for development, namely the development of smart technologies that can be stimulated by the support of small business entities. To address this issue, a comprehensive examination of recent changes in foreign models of financial support for innovation is necessary. Numerous studies acknowledge the pivotal role of entrepreneurship in stimulating innovation, economic growth, and overall well-being, as well as its influence on job creation. Over time, researchers have presented varying perspectives on the relationship between economic development and entrepreneurship. It is widely recognized that innovation serves as a driving force behind the economic progress of nations, positioning innovative entrepreneurship as a crucial factor in contemporary economic development. This article aims to analyze the state's role in fostering innovative entrepreneurship for the economic advancement of Kazakhstan. Taking into account the multichannel nature of both economic development and innovative entrepreneurship, the article presented their vision of the relationship between the above strategically important indicators, reflecting individual characteristics. To achieve this objective, the article employs a model that explores the impact of new or young innovative firms on economic growth rates, thus aligning with the literature review and the stated purpose of the study.

Dynamic Capabilities in Young Innovative Firms: A Multiple-Case Study in Poland

The purpose of this article is to identify the role of dynamic capabilities in newly innovative firms and present their impact on new ventures’ survival and growth. The study is of a empirical type. The research method is a multiple-case study based on 10 cases.

Innovating in knowledge-intensive entrepreneurial firms: exploring the effects of a variety of internal and external knowledge sources on goods and service innovations

AbstractAlthough knowledge-intensive entrepreneurial firms experiencing high growth and generating innovations are widely acknowledged as important for economic growth, surprisingly little is known about how such firms achieve and maintain a high level of knowledge intensity through which to innovate. Our article further develops the concept of knowledge intensity by proposing that it is augmented by external and internal search activities carried out by the entrepreneurial firm and analyzes how these activities affect innovation performance. We use principal component analysis to derive formal and informal search channels from summated rating scales—measuring reliance on internal and external sources of knowledge—and then use fractional logit regression to explore how these channels relate to a firm’s innovative performance, i.e., the share of innovative goods and services sold. We find that searching via informal channels, and formal channels toward scientific and technological knowledge, improves innovation performance of both goods and services, while searching via formal channels toward market knowledge positively affects only innovative goods. Overall, informal channels matter more than formal channels. Lastly, we find substitution rather than complementarity effects between external and internal search channels in their effect on innovation performance in both goods and services. Thus, we interpret that building up knowledge intensity per se through search matters more for innovation performance than whether search is internally or externally focused. Our work contributes to the growing literature on knowledge-intensive entrepreneurship, to the related literature on new technology-based firms and young innovative firms, and to the general understanding of knowledge intensity at the firm level.

Tax the Eggs, not the Hen

The VC industry provides an excellent example for an industry that is based on the ability to bring together ideas and high-risk capital in a process that generates value. Of particular interest is the case where the entrepreneurs reside in one country and the investors reside in another country. There are two types of benefits. The first type of benefits depends on the success of the young innovative technology firms. The second type of benefits depends on the total flow of high-risk capital from the country of the investors to the country where the investment takes place. While the benefits to the entrepreneurs and the shareholders are vastly discussed, the benefit to the hosting country is less explored. Successful entrepreneurs earn a lot of money in case of success. The high gains attract public pressure for higher and more effective capital gains tax. In this work we show that this to be a worthless and even harming. We show that the benefits are both direct in the form of taxes and indirect as higher wages. We use hand-picked database to estimate the total benefit to a small country that was successful in attracting international VC funding. Our main result is that the Income tax collected from VC backed employees is 10.7 higher than the Capital tax gained from exits. The call for the taxation of capital gains of the wealthy individuals could materially hurt the revenue of the hosting country

DIGITALIZATION OF THE WORLD ECONOMY: THEORETICAL AND POLITICAL ASPECTS

The purpose of this article is to explore the theoretical background of the digitalization of the world economy, focusing on the channels of influence of digitalization on economic growth. There is also a discussion of policy priorities to enhance the positive effects and limit the negative effects of digitalization. Systematic and comparative analysis methods were used. The main conclusions are that early research on the impact of digital technology on economic growth has failed to fully explain the sustained correlation between digitalization and productivity, mainly because of the limitations of available statistics in the past. Recent studies largely suggest that digital technology can have a positive impact on productivity through channels such as robotics that increase productivity on assembly lines, autonomous machines and intelligent systems that increase data analysis and operations productivity, automated maintenance scheduling that increases productivity by reducing downtime due to breakdowns, 3-D printing technology that increases productivity through rapid production of parts, reducing the supply chain, innovative materials that reduce costs and processing time, informatics that reduce costs and reanalysis time. It is argued that, in reality, these channels may have much less impact on productivity than their potential, due to a number of market characteristics and policy constraints. The phenomenon of the digital divide includes unequal income distribution, unequal access to technology, and risks of increased unemployment, etc. Thus, effective, comprehensive policies to promote digitalization at various levels can have an important impact on the economic and social goals of the nation. Recommendations are given to solve the problem of the "digital divide" as follows: improving skills and technical knowledge, providing high-speed Internet in rural and remote areas, redistribution of labor and capital, competition policy tools in case of a large influence of platform business on markets, reducing financial constraints for young innovative firms and start-ups, transition to public digital services, digital-friendly policy for the elderly population.

When Does Information Disclosure Help Innovation? Evidence from Blue Sky Laws

Using historical firm-level patent and accounting data, we analyze how information disclosure affects firm innovation. To establish a causal link, we use the enactment of blue sky laws, the first form of investor protection laws, across some U.S. states at the beginning of the 20th century, when there was no federal regulation. These laws required firms to disclose information before selling their securities and increased penalties in case of financial fraud. Using archival records, we document that young innovative firms (startups) had a large share of intangible assets and relied heavily on equity financing (venture capital). In a difference-in-differences setting, we show that following the enactment of these laws, innovative firms that previously had limited access to external finance raised more funds and increased their innovation activity. Our results suggest that disclosure requirements help innovation when the information environment is weak to begin with.

Tax incentives for R&D: supporting innovative scale-ups?

Abstract This article investigates the impact of tax incentives targeting young innovative firms and broader R&D tax incentives where effects on young firms are observed. It examines effects on R&D additionality, R&D wages, employment growth, turnover growth, and sales growth from innovative activities. It draws on academic literature and policy evaluation studies and uses a mixed-method approach based on evaluation synthesis. Evidence on the effectiveness of tax incentives on young and small firms’ employment and economic performance is relatively limited, largely due to a dearth of evaluations. This analysis, based on a limited number of studies, finds that with regard to R&D additionality, generic R&D tax incentives tend to have a larger, or at least as large, effect on young companies, both when compared with companies of average age (with the exception of a study on an Irish tax instrument), and when compared with grants and loans. Some evidence also shows a positive effect on wages. More limited evidence shows that R&D tax incentives targeted at young companies tend to have positive effects on R&D intensity and wages, but that effects decrease relatively if combined with other instruments such as subsidies. With regard to output additionality, generic R&D tax incentives have a limited impact on innovation for all companies and a positive impact on turnover, turnover share of new products or services and labour productivity. There is some evidence of positive effects on employment, productivity, sales and added-value of targeted measures, but these results should be validated using more robust methods.

STARTUPS AND YOUNG INNOVATIVE FIRMS MERGERS & ACQUISITIONS: AN ANTITRUST DEBATE? LESSONS FROM THE ICT TECNO-ECONOMIC PARADIGM

ABSTRACT This paper is devoted to answering two questions. First, as to how the antitrust authorities should consider knowledge-based startups or the acquisition of young innovative firms. Second, what the current institutional challenges in this topic are. We looked at the antitrust theoretical debate and examined two recent merger cases of the ICT industry in the United States and in the European Union in order to extract insights about these questions. In addition, we briefly explored the Brazilian institutional framework to propose an agenda in terms of policies and academic research for this country. We sustain that market shares are not an accurate proxy for market power considering the possibility of being successful in terms of innovation strategies; they can be highly volatile or might not appropriately show the firm’s potential in the process of competition by innovation. There are important contributions that present general principles concerning the incentives to innovate post-merger. Nevertheless, they were designed to encompass all kind of merger effects on innovation and still there are no well-defined procedures in the international or national scenario. Regarding startups and young firms, some issues are addressed: the small or even non-existent market share and the importance of identifying the buyer and their changes in incentives to maintain the innovation path are some characteristics that make the analyses even more complex. There are relevant gaps for the antitrust authorities, since submission thresholds are mainly based on companies’ revenues. The introduction of additional thresholds for the value of transaction and a better interaction between innovation and competition policies may be a starting point.

Is Wisdom of Crowds a Positive Signal? Effects of Crowdfinancing on Subsequent Venture Capital Selection

Venture capital investors, whose decisions are highly consequential for the survival and growth of new ventures, serve as gatekeepers for the diffusion of radical innovation. In recent years, crowdfunding – an innovation in the start-up finance arena – is emerging as a viable route for entrepreneurs to secure scarce early-stage financing. While venture capital remains the most important source of funding for young innovative firms in later stages, it is important to study the interactions between new and traditional forms of venture financing. This study examines the impact and signaling effects of prior (crowd-based) funding on subsequent venture capital funding rounds. Drawing on a choice experimental research design and data on 5,280 selection decisions by 120 venture investors, the results indicate that “the crowd” is generally seen as a negative signal, but that it can generate certain positive signals to which professional venture investors react in their decision making. We find causal evidence that young firms with a previous crowdinvesting (securities-based crowdfunding) are typically not selected by venture investors, whereas high pledges of (reward-based) crowdfunding, collected fast by start-ups with a B2C business model, can have a positive effect on VC managers’ funding decisions. Our findings also suggest that traditional forms of pre-funding, i.e., prior business angel investments, by contrast significantly increase the likelihood of subsequent financing rounds. Theoretical and managerial implications are discussed.

Government Financial Assistance as Catalyst for Private Financing

This paper investigates whether financial assistance from Australian state and federal governments to private firms facilitates their access to external financing. Findings show that government assistance affects firms through increasing their propensity to seek financing and further by increasing their propensity to obtain the financing. The former is the larger effect. Young innovative firms are getting the biggest boost in credibility with government assistance. The form and the number of assistance received from the government also affect the type and strength of the impact. The findings underline the conditions under which government financial assistance leads to an extra channel for additionality.

Eco-systems for young digital innovators

This contribution takes a closer look at innovation in ICT sectors and the failing ability of young innovative firms in Europe to grow into leading world innovators in these sectors. The analysis suggests that Europe might be missing strong digital regional clusters with a symbiotic relationship between young ICT innovators and incumbent ICT leading companies.

Liquidity Runway and Horizon of Disappointment: Business Model of Venture Lending

This article discusses venture debt as an important source of funding for young innovative firms, one that is rooted in a unique economic model. The authors present a detailed analysis of the concept and its multiple elements. Through unique access to deal-level data from a European venture lending fund, they underline the analysis with empirical data to explain the interdependencies among venture lenders, start-ups, and venture capitalists and how missing track records, tangible assets, and positive cash flows can be substituted in venture lending deals. Their results suggest that venture capitalists as well as intellectual property play a crucial role in the venture lender’s decision by signaling attributes of the start-up to the lender. The authors outline the risk-reduction instruments applied by the venture lender in mitigating default risk despite high volatility and a lack of conventional collateral. They then link this to the concept of the J curve, in which the authors use insights from option-pricing theory to rationalize the security design.

Eco-Systems for Young Digital Innovators

This contribution takes a closer look at innovation in ICT sectors and the failing ability of young innovative firms in Europe to grow into leading world innovators in these sectors. The analysis suggests that Europe might be missing strong digital regional clusters with a symbiotic relationship between young ICT innovators and incumbent ICT leading companies.

Policy Lessons from Financing Innovative Firms

There has been increasing global concern from policy makers over the lack of access to finance for young innovative firms. As a result, governments in many OECD countries have sought to address the financing gap and perceived market failures by supporting the seed and early stage market. This paper seeks to summarise the lessons learned in seed and early stage finance based on OECD work focused on policies related to financing high growth firms, including angel investment and venture capital. Growth in seed and early stage finance policies highlights the role that financial development and other policies play in firm dynamics and job creation.

Governmental venture capital for innovative young firms

Governments around the world have set up governmental venture capital (GVC) funds, and are increasingly doing so, with the aims of fostering the development of a private venture capital industry and to alleviate the equity capital gap of young innovative firms. The rationale and the appropriateness of these programs is controversial. In this paper, we borrow from the recent literature on entrepreneurial finance to document the evolution and to compare the effects of the different types of governmental support. In contrast with a lack of success in some countries, there have been successful GVC initiatives, such as the Australian Innovation Investment Fund. Consequently, the proper design of the investment processes of GVC funds is an urgent topic for scholars and policy makers.

How the VC Industry Transformed an Economy: Evidence from Two Decades of Israeli High-Tech Sector

We question the impact of the Venture Capital industry on its hosting economy. This area is rarely explored because 90% of the VC investments are in the US and other large economies, wherein the impact of the VC is too small to be measured. Israel presents a unique case in which the activity of the VC industry over two decades (1993-2012) made the Israeli an exporter not only of High-tech hardware and software but also of intangible assets such as patents knowhow and expertise.In the knowledge-based world, ideas are an important driver for growth and development. It takes a long time to turn ideas into actual cash flows. The VC industry provides an excellent example for an industry that is based on the ability to bring together ideas and high risk capital in a process that generates value. Of particular interest is the case where the entrepreneurs reside in one country and the investors reside in another country. In this paper we show that in this case there are two types of benefits; the benefits to the entrepreneurs and the investors, and the benefits to the country where the investment takes place. The first type of benefits depends on the success of the young innovative technology firms. The second type of benefits depends on the total flow of high-risk capital from the country of the investors to the country where the investment takes place. The two main components of the second macro benefit are the wages of the local high skilled and other workers; and the tax that they pay. Israel is a good example for a country that benefits substantially from the import of high-risk capital, primarily from the US, via venture capital fund. We use hand-picked database to estimate the total benefit to the Israeli economy from the investment of venture capital funds, which are funded by foreign high-risk capital.Our main result is a direct empirical measure showing that the benefits to the Israeli economy from the wage bill which is generated by the VC investment is at least ten-times larger than the direct benefits from the successful start-ups only. This result can be translated into an optimal governmental policy of incentives that are set to keep cost-benefit efficient success rate.

Financing Innovation in Italy: An Analysis of Venture Capital and Private Equity Investments

Using a unique data set, this paper describes the main features of the venture capital industry in Italy. Operations by Italian specialised venture capitalists are only in part devoted to small, young firms from advanced industries, have a rather short duration and are weakly focused on a few firms or sectors. Furthermore, young innovative firms receiving private-equity capital – from both ‘venture-capital’ funds and other private-equity funds – are usually also financed by banks, both at the start and the end of the investment, and the fund’s commitment tends to reduce the cost of credit to only a limited extent. Overall, an ‘equity-then-credit’ sequence does not clearly emerge in the financing strategies of young and high-tech Italian firms, suggesting that funds play a weak signalling or scouting role vis-a-vis the banking system.

Governmental Venture Capital for Innovative Young Firms

Governments around the world have set up Governmental Venture Capital (GVC) funds, and are increasingly doing so, with the aims of fostering the development of a private venture capital industry and to alleviate the equity capital gap of young innovative firms. The rationale and the appropriateness of these programs is controversial. In this paper, we borrow from the recent literature on entrepreneurial finance to document the evolution and to compare the effects of the different types of governmental support. In contrast with a lack of success in some countries, there have been successful GVC initiatives, such as the Australian Innovation Investment Fund. Consequently, the proper design of the investment processes of GVC funds is an urgent topic for scholars and policy makers.

Economic Downturn and Financing Innovative Startup Firms

How does economic downturn affect the financing of young innovative startup firms? In the context of venture capital firms financing innovative firms during economic downturns, we hypothesize that the decision to finance young innovative firms depends largely on the nature of the economic downturn. Specifically, we hypothesize that venture capital firms are less likely to invest in early-stage innovative firms during an economic downturn that is directly related to the technology sector, and are more likely to invest in early-stage innovative firms during an economic downturn that is not directly related to the technology sector. This is mainly because venture capital fundraising activity decreases during economic downturns, which makes venture capital firms shift investments between early-stage startup companies and later-stage startup companies depending on the situation of the public equity market. Our empirical analyses support our hypotheses. This study contributes to the entrepreneurship literature ...