Executive Forum: the scale-up gap: and how to address it

Rudy Aernoudt

Venture Capital, 2017, vol. 19, issue 4, 361-372

Abstract: There is academic unanimity concerning the fact that the equity market does not function at the lower end. Risks are too high and not rewarded by sufficient return. Hence, companies looking for small amounts of money in the seed or early stage phase do not find it. This paper argues that second- and third-round financing, even though less risky, has also become problematic, especially in Europe. While start-ups are confronted with the small equity gap at seed and early stage, scale-ups are also confronted with an equity gap at later stages. A holistic policy, not focused on a specific stage of investment, should therefore replace a targeted one. The paper shows that in this context a government-backed debt-financing instrument delivers better value for public money than a fund-of-funds approach and increases the efficiency of the latter.

Date: 2017
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DOI: 10.1080/13691066.2017.1348724

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