What We Know and What We Need to Know
Edited by Alain Fayolle
Many entrepreneurial firms that are innovative, growing and seeking to internationalize encounter problems in obtaining sufficient finance. A long debate has surrounded the existence of a possible market failure in the provision of finance to entrepreneurial firms. This alleged market failure is viewed to create a so-called finance gap for new and growing firms, and more specifically a gap relating to the ability of some entrepreneurs and firms to attract equity finance. Although some new and small firms may be unable to obtain finance, this is not in itself an indication of a market failure. If markets are working efficiently, firms that do not have viable products or markets or are inefficient with no competitive advantage will face difficulties in obtaining finance. However, a market failure may indeed occur if viable businesses are unable to obtain the amounts of finance they need. This may be because of problems arising from an unwillingness by the suppliers of finance to take the risks that would be involved, or it may be the result of the challenges financiers face in obtaining the information about a firm which they need in order to be able to make an informed investment decision. In this chapter, we examine the challenges to entrepreneurs in obtaining finance for their firms. We outline the different sources of finance that can be used by entrepreneurs.
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