Short Notes for a Questionnaire on
High-Growth and Innovative Firms’
Access to Finance
Due to imperfections in financial markets and the existence of asymmetric information,
firms are not indifferent about how to finance their growth patterns. Applying for long term bank
loans in order to finance new investments has not the same implications as, for example, “going
public” and trying to get the same amount of resources by equity or applying (without necessarily
“going public”) to Venture Capital and Private Equity funds for the same purposes. This said, if
one accepts that debt finance and equity finance are not perfect substitutes one can also accept the
idea that, once internal and external conditions affecting the firm environment are given, one of
the two financing tools could result as being more “efficient” than the other, by i.e. producing a
higher positive impact on the firm’s growth performance1. It is anyway to consider that the core
question is not about the exact definition of an optimal financial structure, but rather that of
exploring at best the way in which different financing tools affect firm growth.
Policy implications are quite evident. In the last decade, almost all national governments,
even those of most advanced countries, have put a lot of emphasis on policies related to fostering
entrepreneurship, since it is increasingly viewed as one of the main determinants of growth. More
precisely, policy attention has been devoted to innovative and high-tech firms, especially SMEs.
These enterprises have indeed been assigned a somewhat pioneering role, as they are supposed to
implement change and open new markets by means of their peculiar features, including high
expenditures on R&D and capital-intensive production processes.
If achieving the highest growth performance (whether measured in terms of employment, assets or
turnover) is the main objective of the vast majority of policy-makers, one can be pretty sure that
they will be interested in knowing more about what sort of financial tool allows enterprises to
attain the best growth figures.
There is an evident need for further research on the relation between firms’ financing
decisions and their growth performance, in order to answer whether debt and equity finance really
display different productivities when it comes to evaluate their impact on growth patterns. It
would also be interesting to tackle a more detailed analysis on the motivations and factors that
concretely contribute to the firm’s decision to apply for bank loans rather than equity funds, or
vice-versa. Such; an analysis that would obviously have to consider several conditions that may
affect the firm’s universe, in terms of dimension, kind of activity and phase of development.
Indeed, it could be useful to assess whether the vision that looks at banks or traditional financial
institutions and private equity or venture capital funds as concurrent capital providers, is wrong.
1
This requires previously providing proper answers to two different issues. The first one concerns the “measurement”
problem, related to the fact that it is first necessary to determine how to measure the influence financing tools play on
firm’s outcome, while the second one is related to “exact-determination”, since it is extremely important to study
whether the relationship between debt or equity finance and growth changes with varying firm’s conditions. Both
issues are generally tackled by all contributions attempting to widen the list of growth regressors beyond firm size and
age.
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Is it then possible to affirm the existence of two different and distinguished capital markets
to which firms can apply, according to the level of risk associated with their projects? In other
words, do venture capital and private equity funds meet a capital requirement that will never have
a satisfactory answer from banks and traditional financial institutions? Could it be possible to state
that banks will get involved in financing start-ups, high-tech and innovative firms only when their
investment proposals have risk profiles that can be handled through ordinary guarantees or, at
least, when public guarantee schemes intervene to bring the higher risk back within the banks’
operational sphere? All these points require – in our opinion – further investigation, in order to
improve the understanding of their implications on the side of policy efficiency and effectiveness.
Furthermore, more effort should be directed towards the exact configuration of the socalled financing gap. According to common view, this obstacle to firms’ development is generally
related to asymmetries and restrictions on the supply side. Firms, especially SMEs, are supposed
to have a lot of trouble in finding adequate external funds mainly because financial resources are
somehow scarce. More recent surveys however tend to underline the fact there is no credit
rationing or shortage of equity finance supply in the market; the main hindrance to firms’ access
to development financing being the low quality of their investment proposals. This is indeed an
issue of huge relevance, since clear empirical evidence that the financing gap is related to
demand-side factors would suggest a need to shift attention towards demand-side oriented policy
instruments. For example, more attention could be paid to affecting investment readiness by
improving the quality of business plans and investment proposals.
In conclusion, the questionnaire on Access to Finance has the specific aim of unveiling the
mechanisms that are behind firms’ decisions on the financing of their investment and growth
strategies. By outlining the difficulties firms face in accessing external finance, as well as by
enquiring about the order of preference they tend to assign to different types of debt and equity
finance, the questionnaire will try to track financing gaps to their exact origin (supply or demand)
and nature.
All this with the objective of providing firms with an information tool that enables them to
attain a clear perception of the way in which financial constraints affect their growth patterns. As
a subsequent outcome, firms will also have the chance of using this increased knowledge as a
lever to demand policy makers and public administrators a higher commitment to best practices,
by means of more rational, efficient and effective business and entrepreneurship supporting
policies.
The questionnaire will mainly target High Growth and Innovative SMEs, with the purpose
of reaching those firms to which all forms of financing (debt and equity) are concretely available
options. Targeting traditional SMEs would indeed lead to misleading results when putting the
same emphasis both on debt and equity finance, since venture capital, business angels and other
forms of private equity financing are extremely hard to handle for less structured SMEs,
especially when active in the most traditional industrial sectors. For the vast majority of
entrepreneurs such financing tools never appear among the main determinants of their investment
and growth strategies. Yet, venture capital, business angels and other forms of private equity may
represent useful assets for a greater number of SMEs than those who currently have access to
such financing sources.. This underscores why we consider it important to spread our efforts to
both sides of financing (debt and equity) with the same level of attention. The results we will
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attain with reference to High-Growth and Innovative SMEs could then be helpful in order to
provide recommendations aimed at fostering less traditional forms of equity finance for a wider
audience of SMEs.
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A Proposal for a Pilot Survey Questionnaire on “Access to Finance”
within the HGSMEs and Innovation Project
(P. Sicari, OECD, Statistics Directorate) 05/11/2007
SECTION 1 – THE FIRM’S GROWTH STRATEGIES
1. During the last year has your firm made any new investment or expenditure intended
to result in growth? If yes, for what overall amount?
Yes
€ ____________________
No (Go to question 3)
2. If you have answered “Yes” to the previous question, what kind of new investments
and growth-oriented expenditures were made by your firm in the last year?
[For each main growth investment and expenditure category (ICT, PRODUCT,
PROCESS, HUMAN RESOURCES) please indicate the total amount spent
during the reference year and specify, in percentage terms how total amounts
were subdivided into components;
For example given a 100.000€ investment in ICT, where 70.000€ was spent on
software and 30.000€ on hardware please write 100.000€ in the box next to ICT
and fill the Software and Hardware blanks with 70% and 30%, respectively. ]
ICT
€ _____________________
Hardware
Software
Internet/Intranet/Extranet
Other Telecommunication devices
Improvements to administrative and managerial systems
Other ICT investments
P. Sicari, STD
%
%
%
%
%
%
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PRODUCT
€ _____________________
Research & Development
Improving the quality of existing products (different from R&D)
Creation of new products (different from R&D)
Marketing and Communication
Other investments on products
PROCESS
€ _____________________
New plant(s)
New machinery and equipment
Patents, licenses or other intangible assets
Increasing efficiency (by reducing inputs or labour)
Quality certifications
Reduction of Environmental impact
Other investments in process
HUMAN
RESOURCES
%
%
%
%
%
%
%
€ _____________________
Training courses
Promoting advancement in management education
Improving the “Working Environment”
Other Investments in HR
P. Sicari, STD
%
%
%
%
%
%
%
%
%
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3. If you have answered “No” to question 1, could you please explain why your firm
made no new growth investments or expenditures by indicating which of the
following statements best describes your situation?
The firm doesn’t have sufficient revenues or assets to support new growth
investments and expenditures, and it does not believe that it can raise the
required funds through external fund providers.
The firm has sufficient revenues to support new growth investments and
expenditures but prefers to retain these resources for future operational
expenditures.
The firm is still consolidating its position and finds it premature to launch any
new growth-oriented strategy.
For the time being, the firm has no interest in expanding production, changing
processes or exploiting new markets.
Other reasons.
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SECTION
2 – THE FINANCING OF NEW GROWTH STRATEGIES
4. How were new investments financed?
[Indicate the amount of financing for new growth investments and expenditures
that was obtained through Debt and/or Equity Financing. Then indicate in
percentage terms how much financing was obtained through each subcategory of
financing].
DEBT FINANCE € ________________
EQUITY FINANCE € ________________
Long term bank loans
% Own capital
%
Short and medium term bank
loans
Equity transferred to banks and
% other traditional investing
institutions
%
Government-guaranteed bank
loans
Equity transferred to Private
% Equity and Venture Capital
investors
%
Leasing
% Equity transferred to individual
investors (family, friends,
% acquaintances, etc.)
%
Fiscal facilities
Other long term financial
liabilities
Other short and medium term
financial liabilities
% Government capital transfers
through business supporting
% policies and incentives
%
5. Did an inability to borrow sufficient funds prevent the firm from making all or part
of the desired growth investments and expenditures in 200(X-1)?
Yes
P. Sicari, STD
No
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SECTION 3 – THE RELATIONSHIP WITH DEBT FINANCE PROVIDERS
6. Which of the following statements best describes the relationship between your firm
and banks as concerns the financing of new growth investments and expenditures
made in 200(X-1)?
Banks provided us with all the funds we requested from them.
Banks refused to provide the requested funds.
Banks provided only partial funding.
The firm didn’t apply to banks for financing. (Go to Q 8)
7. In those cases where banks have provided none or only part of the requested
amounts, what was the main reason that the funds were not provided?
Banks considered the firm’s growth project to be too risky according to their
operational standards.
Banks considered the firm was already over-exposed in terms of bank loans
and additional borrowing would have badly damaged its solvency rate.
Banks asked for additional guarantees that the firm could not provide.
The cost of debt was at too high a level and the firm decided to forgo a bank
loan.
Other reasons.
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8. As concerns Question 6, if you have answered that your firm has not applied to banks
in order to finance last year’s new growth investments and expenditures could you
please explain why by selecting one of the following statements?
The firm knew in advance that it could not meet the Bank’s loan
requirements.
The firm was seeking more flexible financial solutions.
The firm was seeking less costly financial solutions.
Other reasons.
9. As concerns the financing of new growth investments and expenditures made in
200(X-1), which of the following statements best describes the decision to seek
financing from debt finance providers other than banks?
The firm applied directly to other debt finance providers rather than banks.
The firm applied to other debt finance providers after a previous refusal from
traditional banking institutions.
The firm didn’t apply to other debt finance providers.
SECTION 4 – OWN RESOURCES
10. In those cases where firm’s own resources have not or have only partially
contributed to the funding of 200(X-1) new growth strategies, what was the main
reason for that?
Firm’s own resources were simply insufficient to finance the planned new
investments.
The firm’s own resources, though sufficient to finance all or part of last year’s
new investments, were retained for other operational or precautionary
reasons.
Others.
SECTION 5 – THE RELATIONSHIP WITH EQUITY FINANCE PROVIDERS
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11. Which of the following statements best describes the relationship between your firm
and external “formal” equity providers, such as Private Equity or Venture Capital
funds, regarding the financing of last year’s new growth investments and
expenditures?
The firm applied directly to formal equity investors.
The firm applied to formal equity investors after banks (and other debt
finance providers) refused to finance its project(s).
The firm strategically applied to Private Equity or Venture Capital investors
in order to have them to co-fund its growth strategies together with banks or
other debt finance providers.
The firm strategically applied to Private Equity or Venture Capital investors
in order to benefit from their involvement in the management of the firm.
The firm was interested and willing to involve Private Equity or Venture
Capital investors but was unable to attract such an investment.
The firm did not apply to formal equity investors at all.
12. If your firm refrained from involving formal investors such as Private Equity or
Venture Capital funds in the financing of its growth strategies, could you please
indicate the main reason for your decision?
Opening ownership to third parties such as PE or VC funds, whose
involvement in the firm goes beyond the supply of financing, has been viewed
as a possible danger to consolidated governance and firm control.
Private Equity and Venture Capital funds are guided purely by financial
consideration and eventually they will exit from their investment. This was
perceived as negatively affecting firm’s long-term stability.
We did not think that formal equity providers such as Private Equity or
Venture Capital funds would provide funds to our firm, taking our firm’s size
and sector of activity into account.
Others.
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13. In those cases where informal, individual investors, such as family members or
friends, took part in financing last year’s new growth investments and expenditures
through equity, what was your main reason for seeking their involvement?
The firm applied to them in order to overcome difficulties encountered on
getting financial resources from traditional fund providers.
The firm sought to reduce its exposure to external fund providers by involving
individual investors in the financing of new growth strategies .
Family members and friends were involved in order to allow them an active
and operational role in the firm’s management and governance.
Other reasons.
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SECTION 6 – A GLANCE AT FUTURE GROWTH STRATEGIES
14. Has your firm planned new growth investments and expenditures for next year and,
if yes, in which of the indicated sectors?
[Please select the main sector (ICT, PRODUCT, PROCESS, HUMAN
RESOURCES) for which next year’s growth investments or expenditures will be
made and specify – if possible – the precise category].
ICT
Hardware
Software
Internet/Intranet/Extranet
TLC facilities (different from the previous ones)
Improvement to administrative and managerial system
Other ICT investments
PRODUCT
Research & Development
Improving the quality of existing products (different from R&D investment)
Creation of new products (different from R&D investment)
Marketing and Communication
Other investments on product
PROCESS
New plant(s)
New machinery and equipment
Patents, licenses and other intangible assets
Increasing efficiency (by reducing inputs and labour)
Quality certifications
Reduction of Environmental impact
Other investments in process
HUMAN RESOURCES
Training courses/Permanent formation
Promoting advancement in management education
Improvement of the “Working Environment”
Other Investments in HR
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15. How is your firm planning to finance next year’s new growth investments and
expenditures?
[Please indicate whether your firm is planning to finance next year’s new
growth investments and expenditures through debt, equity or both and then
select – where possible – the specific financing tool(s) that are likely to be used.
DEBT
EQUITY
Long term bank loans
Own capital
Short and medium term bank loans
Equity transferred to banks and
other traditional investing
institutions
Publicly guaranteed bank loans
Equity transferred to professional
Private Equity and Venture
Capital investors
Leasing
Fiscal facilities
Other long term financial liabilities
Other short and medium term
financial liabilities
P. Sicari, STD
Equity transferred to individual
investors (family, friends,
acquaintances, etc.)
State capital transfers through
business supporting policies and
incentives
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