Investment readiness programs: How startups and SMEs attract equity financing
Investment readiness programs are intended to increase the effective demand for equity financing by helping firms overcome the factors that result in a lack of investment readiness.
While much policy attention around the world has been given to efforts to expand the supply of equity finance for innovative start-ups and SMEs (through seed and venture capital co-investment funds and other activities to attract capital), the effectiveness of these programs can be hampered by a lack of readiness of these firms to receive equity investment.
Mason and Kwok (2010) highlight three main aspects of this lack of readiness:
- Many entrepreneurs are believed to be equity-averse, unwilling to surrender any ownership stake in or even partial control of their firms
- Many businesses that seek external finance are not considered "investible" by external investors due to deficiencies in their team structure, marketing strategy, financial accounts, intellectual property protection, and other business areas
- Even if entrepreneurs are willing to consider equity and have investible projects, presentational failings mean that many firms are unable to pitch their ideas successfully to investors
Investment readiness programs are intended to increase the effective demand for equity financing by helping firms overcome the factors that result in a lack of investment readiness, thereby enlarging the size and quality of the pipeline of potential funding opportunities for investors and increasing the likelihood of new equity investments being made.
These programs are a relatively new form of intervention, but there are now a number of examples in the U.S. and Western Europe.
Such programs are rarer in less developed countries, but pilot programs have been introduced in a number of recently developed or higher middle-income countries.
(With inputs from World Bank)