Innovative businesses, venture capital and networks

M. Musumeci and F. Reito

Rivista economica del Mezzogiorno, 2014, issue 1-2, 235-264

Abstract: The idea that the economic growth of an area strongly depends on the development of innovative, high-technology businesses is more and more dominant in literature. Nevertheless, these businesses, given their special nature, i.e. their high level of innovation, face, since the early years, some difficulties, especially related to funding research. In other words, the element of «uncertainty» characterizing the investments made by high-tech businesses, both in terms of profitability and payback, makes the raising of capital to finance the development of business ideas particularly difficult. Historically, venture capital, made available by institutional investors, has been one of the most suitable financial instruments for start-ups with innovative projects. The only use of venture capital, however, is insufficient to create the conditions to support the birth and development of new high-tech activities, mainly due to a strong risk aversion by investors, information asymmetries about the project between entrepreneurs and financiers, without guarantees and rather high business monitoring costs, as well. For this reason, it is thought that institutional investors in venture capital can play a stronger role when placed within a network that involves different actors, such as universities, research centres, local authorities, finance experts, with the com mon aim of supporting, each with their own skills, small businesses with high innovative potential. It is what we are going to demonstrate by means of a model, known in literature as «old-boy network».

Keywords: Innovation; Funding; Business Networks. (search for similar items in EconPapers)
Date: 2014
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