1. Financing Business Innovation : Review of External Sources of Funding for Innovative Businesses and Public Policies to Support Them
- Author
-
World Bank Group
- Subjects
ADVISORY SERVICE ,CUSTOMS ,PROTOTYPE ,PENSION FUNDS ,PRIVATE INVESTMENT ,CAPABILITY ,INFORMATIONAL ASYMMETRIES ,SHAREHOLDERS ,CREDIT GUARANTEE ,TAX CREDITS ,LIQUIDATION ,TAX EXEMPTION ,TRAINING FOR ENTREPRENEURS ,PHYSICAL ASSETS ,EXPROPRIATION ,GOVERNMENT INTERVENTION ,PRIVATE SECTOR FIRMS ,FINANCIAL INTERMEDIATION ,INFORMATION TECHNOLOGY ,PROTOTYPES ,INTANGIBLE ASSET ,DUE DILIGENCE ,COMPETITIVENESS ,PROTECTION OF INVESTORS ,FINANCIAL INTERMEDIARIES ,INSTITUTIONAL FRAMEWORK ,RETURNS ,TRANCHES ,COLLATERAL ,PENSION ,BONDS ,MORAL HAZARD ,ACCOUNTING STANDARDS ,HARDWARE ,EARNINGS ,GOVERNMENT BUDGET ,FINANCIAL MARKETS ,EMERGING ECONOMIES ,NEW BUSINESS ,CREDITORS ,COLLECTION OF INFORMATION ,NECESSARY SKILLS ,EQUITY FINANCE ,MULTINATIONAL ,ADMINISTRATIVE COSTS ,CORPORATE GOVERNANCE ,SMALL BUSINESSES ,INTANGIBLE ASSETS ,PROPERTY RIGHTS ,BUDGET ALLOCATION ,GRANT FUNDING ,BUSINESS PROCESSES ,INVESTOR PROTECTION ,CONTRACTUAL OBLIGATIONS ,PRIVATE EQUITY ,SOURCES OF FINANCE ,DISBURSEMENT ,INTEREST RATES ,SMALL BUSINESS ,MARKET FAILURE ,AVAILABILITY OF CREDIT ,GUARANTEE SCHEMES ,INTEREST PAYMENTS ,WORKING CAPITAL ,AVAILABILITY OF FINANCE ,IP ,EXTERNAL FUNDS ,GOVERNMENT POLICIES ,CAPITAL EXPENDITURES ,CAPABILITIES ,FINANCIAL CONSTRAINTS ,BUSINESS INNOVATION ,FIXED CAPITAL ,TIME FRAME ,TANGIBLE ASSETS ,TAX RATE ,BANK DEBT ,ENTREPRENEURS ,TAX SYSTEMS ,TAX OBLIGATION ,POOL OF BORROWERS ,INTELLECTUAL PROPERTY RIGHTS ,VOUCHERS ,VENTURE CAPITAL FUNDS ,RETURNS ON EQUITY ,BANKRUPTCY ,GOVERNMENT FUNDING ,TAX OBLIGATIONS ,RISK SHARING ,INVENTIONS ,GREATER ACCESS ,RESULT ,INCOME TAX ,DEBT FINANCE ,ADVANCED TECHNOLOGY ,CREDIT PROVISION ,AMORTIZATION ,EXTERNAL CAPITAL ,NETWORKS ,LIABILITY ,BUSINESS PLAN ,EQUIPMENT ,REVENUE MODELS ,DIVERSIFICATION ,BUSINESS MODELS ,INTELLECTUAL PROPERTY ,BANKS ,CREDIT GUARANTEES ,SOLAR PANELS ,LOAN ,FINANCIAL DEVELOPMENT ,DEVELOPING COUNTRIES ,MATURITY ,SECURITIES ,FINANCIAL RESOURCES ,TARGETS ,DEDUCTIBLE ,MARKET FAILURES ,INNOVATION POLICY ,REPAYMENT ,RESULTS ,BIDS ,CAPITAL EXPENDITURE ,NEW TECHNOLOGIES ,POTENTIAL INVESTORS ,FINANCIAL INSTRUMENTS ,TAX SYSTEM ,ONLINE BUSINESSES ,TAX ,STOCK MARKET ,ECONOMIC GROWTH ,ENTREPRENEUR ,BUSINESS ANGELS ,BENEFICIARIES ,INSTRUMENT ,PRODUCTIVITY ,INVESTING ,LICENSES ,SHAREHOLDER ,PRODUCTION PROCESSES ,INTELLECTUAL PROPERTY REGIMES ,PROCUREMENT ,INTERNAL FUNDS ,USERS ,HIGH INTEREST RATES ,ALLOCATION MECHANISMS ,BENEFICIARY ,FOREIGN DIRECT INVESTMENT ,BORROWER ,INITIAL PUBLIC OFFERINGS ,DEFAULT RISK ,FINANCIAL REGULATION ,NONPROFIT ORGANIZATIONS ,FINANCIAL DISTRESS ,EXTERNAL FUNDING ,ALLOCATION MECHANISM ,INNOVATIVE FINANCIAL INSTRUMENTS ,COMPLIANCE COSTS ,ASYMMETRIC INFORMATION ,MANAGEMENT SYSTEMS ,MOBILE APPLICATION ,PROVISION OF CREDIT ,APPLICATION PROCESS ,SHAREHOLDER VALUE ,TAX INCENTIVE ,AGENCY PROBLEMS ,IPO ,FIXED ASSET ,MARKETING ,RD ,CONTRACT ENFORCEMENT ,FINANCIAL MANAGEMENT ,ACCESS TO FINANCE ,OUTSIDE INVESTORS ,GOVERNMENT SUPPORT ,BANKING REGULATION ,GOVERNANCE ISSUES ,INTANGIBLES ,TAX INCENTIVES ,POLICY ENVIRONMENT ,CREDIBILITY ,DOMAIN ,PRIVATE SECTORS ,LEGAL PROTECTION ,MANUFACTURING ,ACCOUNTING ,PORTFOLIOS ,GLOBAL KNOWLEDGE ,INVESTMENT IN KNOWLEDGE ,USES ,USER ,BUSINESS MODEL ,HUMAN CAPITAL ,RATE OF RETURN ,ASSET BASES ,CLAIMANT ,PRIVATE SECTOR ,SYSTEM FAILURE ,TECHNOLOGICAL INNOVATION ,BUSINESS OPERATIONS ,COORDINATION FAILURES ,HUMAN RESOURCES ,CAPITAL FUNDS ,NEW TECHNOLOGY ,INNOVATIONS ,PUBLIC MARKETS ,POLICY DESIGN ,EXPENDITURES ,INFORMATION ASYMMETRIES ,VENTURE CAPITAL ,STOCK MARKETS ,EQUITY FUNDS ,MARKET RISK ,EQUIPMENT PURCHASES ,EXTERNAL FINANCE ,INTANGIBLE ,ELIGIBILITY CRITERIA ,LOAN GUARANTEE ,STANDARDIZATION ,TAX CREDIT ,FINANCIAL SUPPORT ,SAVINGS ,REGISTRY ,INTEREST RATE ,TECHNOLOGY RISK ,SYSTEM FAILURES ,TAX DEDUCTIONS ,EXPENDITURE ,TAX CONCESSIONS - Abstract
Innovation is the main driver of long-term economic growth. The accumulation of capital, whether in the form of physical assets such as plants and equipment, or through better human capital, cannot indefinitely sustain growth unless new products, services, processes, and/or business models are developed and implemented. This paper describes the actors involved and the types of funding available at different stages of the innovation process, the rationales for public intervention, and the advantages and disadvantages of some of the most commonly used policy instruments. Innovation activities are more difficult to finance than other types of investment for several reasons. Innovation produces an intangible asset that does not typically constitute accepted collateral to obtain external funding. Also, the technological and market uncertainty of innovation activities makes the returns to investment highly uncertain, creating significant problems for the standard risk adjustment methods used by providers of funds. This paper uses a streamlined version of an innovation process with three stages to categorize the different sources of finance available; in reality, considerable crossover takes places among instruments because innovation processes are not discrete.
- Published
- 2012