Financing the high-growth entrepreneurial venture: A public policy perspective

Entrepreneurial activity is increasingly considered a critical driver of a country's economic performance. Governments have recognized entrepreneurship as a mechanism to create employment, to boost national industry competitiveness, to reduce poverty and increase wealth distribution. These objectives, the argument goes, may be undersupplied if left to pure market forces. This is because individual actors would not internalize the social benefits of their individual decisions. Hence, the "entrepreneurship" market would fail. This line of thinking drives public policy development, with the goal to develop intervention mechanisms to aid entrepreneurship and the creation of an entrepreneurial economy. The scope, number, and growth of these programs have been striking. For example, the UK government spent approximately 0.08 percent of GDP in 2001 on supporting small businesses and entrepreneurial start-ups across a number of ministries and departments. However, we have scant evidence whether any of this government intervention works in reality. For example, based on Global Entrepreneurship Monitor (GEM) data for 2003, national experts considered government policies and programs to support the creations of opportunity-based entrepreneurship as ineffective. Furthermore, many of the comments pointed to a central element of an entrepreneurial economy: the supply of entrepreneurial finance. Refer to Figure 12.1, which provides this data for most of the OECD countries.