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Financing With Venture Capital: Advances in Knowledge Over the Last Ten Years and Research Avenues

3.6 New trends

The globalization of markets and the trend toward a knowledge economy alter considerably the economic environment in which businesses of all sizes, in all sectors and of all ages evolve. No one escapes it. However, this has consequences for moneylenders who must adjust by changing their modus operandi as the structure of demand changes. Businesses with a large percentage of invisible assets or a very specialized technological content have specific needs that must be met in a manner different from that of traditional businesses. With the collapse of stock markets in the last few years, it would be surprising if these businesses resorted to public financing to ensure their development. Because we are dealing here with trends and relatively recent phenomena, the paucity of literature on these subjects comes as no surprise.

Figure 9: Summary of Topic 6 Studies

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3.6.1 Technological investment

Some documents were found on this research subject, focussing on the following aspects.

• Selection criteria: experience and interpersonal qualities of the entrepreneur, stage of development, rate of growth, etc.
• The organization of the market: the influence of the type of market and of the countries, complementary intervention of public authorities, the role of big businesses, the type of funds, risk sharing between public and private organizations, etc.

Sectors with a large number of intangible or invisible assets, the knowledge industry, the biotechnologies, etc. are characterized by risks that go beyond that which is generally seen. These risks are variable because uncertainty changes as the project evolves, but it remains difficult for VCC alone to assume them. Thus, the role of the state as an important actor in complementing the supply of financing has been the topic of several studies in various countries. The conclusions are fairly unanimous on the relevance of this role. What is less known is the form of the state’s intervention and, in a dynamic aspect, what role it plays in the various stages of development of innovation projects or according to the various types and levels of risk that are at issue. There are few studies on partnerships between governments, VCC and private enterprises, which would be relevant within the context of business networks.

3.6.2 The future of stock markets for rapidly-growing SME

For a variety of reasons, stock markets have been fairly knocked about in the last two years. Lower returns for new-economy businesses on the public market have made this means of financing almost inaccessible to most small but rapidly-growing businesses whose capital requirements are beyond the financial capacities of individual institutions and companies. Investors have lost large sums of money, as have brokerage firms, financing institutions, etc. Will the traditional public market, or even the Canadian Venture Exchange, remain a possible source of financing for small, growing Canadian companies? The subjects that the literature deals with are:

• SME in a network: involvement of large businesses in financing, the form of the financial participation, etc.;
• the future of stock markets for growing SME: liquidity of the market, size of the domestic market, regulation, accessibility, efficiency, etc.

Few studies have bothered to measure the financial preferences of entrepreneurs and the options that they would choose to finance the growth of their business. Is the stock market a reasonable option? Probably not for most entrepreneurs. It is, therefore, hard to imagine that there are large volumes of activity that will allow the market to be liquid. What about SME pool issues through a consortium, or debt securities that take more account of the financial preferences of entrepreneurs? Could the government play a role to allow a greater number of SME to obtain public financing in various forms, in partnership with the private sector? Would a specialized stock market, exclusively for SME, be a solution?

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