Financing Technology-Based Small Firms in Europe: what do we know?

Valérie Revest* Sandro Sapio**

Abstract

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This paper reviews the evidence on financing technology-based small firms (TBSFs) in Europe. The main findings in the literature are that 1) European TBSFs finance new investments by relying primarily on internal funds, due to capital market failures induced by asymmetric information; 2) European venture capital has caught up with US venture capital, but this is mainly because of the growth in UK venture investments, and it is unclear whether European venture capital has been able to certify the quality and to enhance the growth of funded companies; 3) the development of trading in high-technology stocks has been limited, if compared with the NASDAQ: the so-called “New Markets” established in the Nineties have collapsed in the wake of the Internet bubble crash; 4) public venture capital and R&D tax incentives seem to have positively affected high-tech firms. Issues for future research on all these topics are suggested.

Keywords: Technology-based small firms, capital structure, venture capital, high-tech stock markets, public support.

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