Which firms typically seek risk capital financing and how many SMEs requested equity financing?
High-growth firms and knowledge-based industries (KBIs) usually develop an idea, concept or product that requires an incubation period before generating revenues and profits. These firms face unique challenges in obtaining access to timely and appropriate financing, since they lack sufficient tangible assets to secure bank loans or other types of debt financing. Risk capital is often a more appropriate financing instrument for firms with highgrowth potential and start-up SMEs, particularly in KBIs (see Figure 8). It can originate from a number of sources, including the entrepreneur’s own investment, investments by family and friends (“love money”), informal private investment by wealthy individuals (“angel” investors), venture capital investment and investment through initial public offerings on the stock exchange. In 2001, less than 3 percent of SMEs made a request for equity financing, a finding similar to that in 2000.
