Financing innovative entrepreneurship

Mahmoud Alinejad, Antonio Balaguer and Luke Hendrickson

Research paper 8 |

Surveys in Australia and across the OECD suggest that obtaining adequate access to capital is one of the biggest hurdles to growing innovative firms. This paper investigates the likelihood of firms of different age, size and innovation intensity to seek debt or equity finance. Our analysis shows a majority of Australian firms do not tend to seek debt or equity finance in any given year, and that most young SMEs obtain the debt finance they seek. Young innovative firms, particularly the new-to-market innovators, are significantly more likely to seek debt and equity finance than non-innovators. Young innovative SMEs are also significantly more likely to get the equity finance they seek suggesting that there is not an issue with equity finance for young innovative SMEs in Australia. Additional venture capital financing data suggests that fewer high-growth potential, innovative firms are now receiving venture capital despite resurgence in demand. Australia’s venture capital early-stage investments are also very low when compared with OECD countries. This specific equity financing gap may present significant challenges for the diversification and growth of innovative, disruptive firms in Australia.

JEL Codes: G24, L26, M13, O16

Keywords: innovation, entrepreneurship, start-up, capital market, debt finance; equity finance; venture capital, high-potential firm

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