Frontiers in European Entrepreneurship Research
Frontiers in European Entrepreneurship series
Edited by Mário Raposo, David Smallbone, Károly Balaton and Lilla Hortoványi
Chapter 4: Understanding the Start-up Funding Process in Venture Capital-backed and Non-venture Capital-backed Firms
Teresa Hogan and Elaine Hutson INTRODUCTION The lack of a well-developed venture capital market has long been viewed as a major barrier to the emergence and development of New Technology-Based Firms (NTBFs) in Europe (European Commission, 1995, 1999, 2001 and ENSR, 2002). The last decade has seen a dramatic increase in venture capital investment in Europe, and in 2005 total fund activity exceeded that of the US for the first time (Oehler et al., 2007). Ireland’s venture capital market also expanded rapidly during this period. Over €2 billion was invested between 2000 and 2005, of which €1.2 billion came from local investors (IVCA, 2006). The main beneficiary has been the indigenous information technology (IT) industry, and in particular the software sector, which until recently has had little competition for funds from emerging technology sectors such as healthcare and biotechnology. Even today the investment portfolios of Irish venture capitalists are dominated by IT companies, which attracted 60 per cent of their total investment funds in 2005 (IVCA, 2006). The Irish software sector therefore provides an excellent laboratory for examining the financing of NTBFs. Despite the expansion of venture capital in recent years, policy-makers remain concerned about the supply of funds to NTBFs (Murray and Dimov, 2007). In Ireland, for example, a major review of enterprise policy at the height of the economic boom concluded that: ‘While the financial environment for enterprise has improved considerably over the past decade, there are still market failures in the provision of services to SMEs and...
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