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Edited by Javed Ghulam Hussain and Jonathan M. Scott
China has aspired to overhaul its growth model by vigorously promoting technological innovation and entrepreneurship. Like many other countries, however, a funding gap constrains new and technology ventures in the early stage of venture development. To address this challenge, China has used government-backed venture capital as an important means to plug the gap. Four super-sized central government backed venture capital guiding funds (VCGFs) have been set up and dozens of similar schemes are in operation at the local levels. Framed in the mould of the Yozma model, fund-of-funds and co-investment have been the dominant models to leverage private VC investments. This chapter provides a case study of government-backed venture capital schemes in China. It sets out to document the background conditions that explain the country’s need for public venture capital, to describe the distinct features of programme design in such schemes, and to tentatively assess the impact of government-backed venture capital.
Colin Mason, Richard T. Harrison and Tiago Botelho
The ultimate purpose of investing in an entrepreneurial business is to achieve a financial return. Yet there is little discussion in the entrepreneurial finance literature on the exit process and only limited evidence on returns. This chapter focuses on business angels. It argues that the main challenge for business angels is in achieving an exit. Previous research indicates that returns from those exits that do occur are skewed: around half of all investments fail and only a small minority generate significant returns. We suggest that the difficulties in achieving profitable exits reflects, in part, the fact that most angels do not adopt an exit-centric approach to their investing. This involves considering the exit at all stages in the investment process, including the initial investment decision. The main features of an exit-centric investment strategy are discussed.
New Zealand is of interest for containing a unique and specific environment for entrepreneurs and for entrepreneurial finance. It is a small open economy with a population of 4.5 million and geographically remote and peripheral from the developed world’s major economies, in Europe and North America. This places special challenges on its entrepreneurs. However, it is ranked by the World Bank as one of the easiest economies in which to do business (New Zealand is ranked second behind only Singapore) reflecting a benign economic and financial regulatory environment. In this chapter we examine the demand and supply side implications of this context for entrepreneurial finance. New Zealand’s banks are largely Australian owned and were comparatively insulated from the Global Financial Crisis (GFC) post-2008, which arguably has provided continuity in entrepreneurial debt finance. However, by comparison with North America and Europe, sources of equity and venture capital are immature and regarded as being fragmented by financial commentators. As a result, the New Zealand government has sought to stimulate VC and equity markets. In this chapter we report demand side research conducted by the author with New Zealand technology-based small firms and their experience in raising entrepreneurial risk capital over a two year period from 2011 to 2013. The chapter concludes with some of the implications for ‘Kiwi’ entrepreneurs and observations on the emergence of embryonic business angel networks which have some unique characteristics.
Sibylle Heilbrunn and Nonna Kushnirovich
The purpose of this chapter is to examine patterns of finance of ethnic minority-owned businesses and compare these patterns to those owned by ethnic majorities. Based on the disadvantage approach, we investigated four groups of entrepreneurs in Israel. Using a combination of convenience and snowball sampling, we reached 948 entrepreneurs who answered a comprehensive questionnaire. The patterns of financing businesses owned by minorities differ from those of majority entrepreneurs in terms of access to capital and constraints, sources of funding, scope of investment and financial viability. Overall, our findings indicate that stratification encounters entrepreneurship also in financing patterns. Within the Israeli context internal (education) and external (institutional) constraints lead to lower availability of financial resources, distributed and available along lines of the social hierarchy of the groups under investigation.
Javed G. Hussain, Samia Mahmood and Jonathan M. Scott
Access to credit for entrepreneurial women is of interest to governments, academics and policymakers worldwide due to its significant socio-economic and poverty-reducing implications. In the context of Pakistan, financial institutions tend to cater for the upper- and middle-classes to the exclusion of the poor in general and low-income women in particular. Whilst poverty is a multifaceted term categorized as financial (income) poverty and human poverty, financial poverty specifically serves as a barrier to the growth of women-owned enterprises which, in turn, gives rise to their exclusion from labour markets and social, educational and health services. Financial exclusion directly correlates with lower levels of empowerment or independence within the household due to a lack of access to health services and basic education. Such inequalities in access to entrepreneurial finance impact upon women disproportionally, as the proposed interventions tend to be through microcredit programmes targeted at low-income women. In this chapter we assess the relationship between microfinance and poverty reduction using a binary logistic model. The findings indicate that microfinance positively reduces financial poverty; however, it contributes much less to human poverty reduction. The chapter concludes with some observations on the experiences of women in accessing finance and on the role and effectiveness of microfinance to aid Pakistani women’s access to finance.
David J. Storey
Navjot Sandhu, Javed G. Hussain and Harry Matlay
This chapter investigates the relationship between small/marginal farmers and various informal lenders in the Indian Punjab. The authors examine pertinent aspects of lending practices relating to informal providers’ decision-making processes when lending to farmers. The findings indicate that financial lending structures, as well as borrowing decisions, depend largely upon a number of difficult-to-quantify factors such as culture, caste, family size, education, reputation and relational lending practices which are prominent amongst both formal and informal lenders. Informal lenders represent a dedicated and bespoke source of finance, a well-established ‘institution’ for several generations and serve a large population of small/marginal farmers. Hence in order to minimize adverse outcomes and improve access to finance, there is a need to regulate the informal lending sector of India.
Jonathan M. Scott and Javed G. Hussain
Candida G. Brush, Linda F. Edelman and Tatiana S. Manolova
Angel investment plays a crucial role in financing growth-oriented ventures by filling the gap between informal infusions by family and friends and more formal institutional (venture capital) investment. In this chapter we are interested in women’s ability to obtain critical early-stage, angel funding. Using a ‘readiness for funding’ framework and drawing from a proprietary database of 668 firms that over a four-year period sought angel investment from the members of a prominent angel investment group located outside of Boston, MA we compare men-only top management teams to teams which are more diverse. Our findings indicate that despite being more ‘ready’ on many of our readiness indicators, diverse top management teams are not more likely to receive funding compared to their all male counterparts. This suggests that when it comes to angel financing, the effect of top management team diversity is more nuanced and intermediated. Implications are discussed.