EXPERIMENTATION: Capital Markets and Innovation: Financing Business Experimentation in Europe


How is the early development and subsequent growth of firms financed? And with what consequences for innovation? Finance is a major innovation constraint for companies and various instituted responses can handle in different ways the strong uncertainties associated with new businesses, processes, products and services. These responses vary significantly across countries and sectors and generate different combinations of innovation finance instruments and performances.

Until recently, a large proportion of studies on innovation finance was focussed on the US and while many lessons have been drawn from it that can foster, for example, more effective deployment of VC policies in the European context, much still needs to be learnt in order to: 1) understand the firm-level effects of different modes of innovation finance and 2) appropriately match innovation finance policy instruments to the needs of heterogeneous economic contexts

In this part of the FINNOV project we investigate:

  • The different modes of financing innovative businesses
  • Their complementarities and limitations
  • The relative effects on innovation processes and growth patterns of firms
  • The implications of the findings for innovation policy.

Description of work

The effectiveness of innovation investments cannot be independent of a broader set of resources available in the specific contexts in which it they are deployed and through which they have developed. These include both tangible and intangible resources. Moreover, they are often mobilized for different reasons (for example, to generate direct returns or to gain strategic advantages) and at different times in the innovation finance life-cycle. Also importantly, the distribution and dynamics of investments in business experiments are changing in relation to more general shifts in the governance of European innovation systems (for example, the mounting pressure on higher education institutions to commercialise new knowledge) and in relation to the current economic climate.

Work Package 3 includes:

  1. A critical review of the state of the art of the innovation finance literature
  2. Analysis of the relationship between the structure of financial backing of new firms and innovation performance and identification of impact of potentially relevant factors such as sector, location and other firm characteristics
  3. In-depth study of the venturing process and its relationship firm behaviour at the micro level
  4. Analysis of the dynamics of financing and commercialising knowledge generated at the public-private interface
  5. Identification of emergent trends in innovation investments and business experimentation in Europe.

Work Package leader: Andrea Mina, University of Cambridge