Sources of finance for technology-based small firms: A review of the empirical evidence

Valérie Revest, Sandro Sapio
Work package: 
WP 4
Publication number: 
01 August 2010

Abstract: This paper reviews the evidence on financing technology-based small firms (TBSFs) in Europe. European TBSFs finance new investments by relying primarily on internal funds, due to capital market failures induced by asymmetric information. European venture capital has caught up with US venture capital, but this is mainly because of the growth in UK venture investments. It is unclear whether European venture capital has been able to certify the quality and enhance the growth of funded companies. Compared with the NASDAQ, there has been little development of trading in high-technology stocks in Europe: the so-called “New Markets” established in the 1990s have collapsed in the wake of the Internet bubble crash. Public venture capital and R&D tax incentives seem to have positively affected high-tech firms. Issues for future research on all these topics are suggested.

Keywords: High-tech, small firms, capital structure, venture capital, stock markets, public policy.
JEL Codes: G24, G28, G32, M13.
FINNOV DP4.1814.0 KB