Policy makers consider the start-up and growth of new technology-based firms (NTBFs) to be one of the primary solutions to increase economic growth, as they contribute both to the development of new technologies and products and to job creation. In consequence, public support to NTBFs has been a prioritized issue. Such support has traditionally been justified by referring to market failures in terms of, e.g., underinvestment in R&D (Nelson, 1959; Pavitt, 1991) and “financial gaps” faced by early-stage ventures (Bygrave and Timmons, 1992). However, the argument of this paper is that supply of support does not match demand in terms of the support needs of different types of NTBFs. In order to remedy this shortcoming, this paper combines entrepreneurship and innovation research to develop a typology of NTBFs that is used to compare and integrate the demand and supply sides of public support to NTBFs.
The first part of the paper focuses the demand side of public support to NTBFs. We first discuss general characteristics of NTBFs, with a particular focus on aspects of vulnerability and liability of newness (Stinchcombe, 1965): NTBFs are new, which implies immaturity (Penrose, 1959), lack of credibility (Birly and Norburn, 1985; Zimmerman and Zeitz, 2002) and limited resources (North et al., 2001), as well as technology-focused, which tends to imply lack of managerial skills and dependency on one main product (cf. Westhead and Storey, 1997; Mason and Harrison, 2001). We then argue that differences between NTBFs influence both the conditions for them overcoming their initial vulnerability and the types of problems they encounter in the early development phase. Thus, different types of firms will have different support needs and different potential to achieve certain types of outcomes within a specific time frame. Based on this discussion, a typology of NTBFs is developed, which takes into account the origin of the venture (academic spin-offs vs. corporate spin-offs vs. independent companies) (cf. Meyer, 2005; Wallin and Lindholm-Dahlstrand, 2006) and the degree of innovativeness of the venture’s main product (non-innovative vs. sustaining innovation vs. disruptive innovation) (cf. Rosenbloom and Christensen, 1994). The resulting nine types of NTBFs are illustrated by empirical examples and the support needs of each type are identified. The typology, thus, provides guidelines for policy makers with respect to the support needs of different types of NTBFs.
The second part of the paper focuses the supply side, i.e. the two main policy areas that provide support for NTBFs: small-and-medium-sized-enterprise (SME) policy and science-technology-innovation (STI) policy. A comparative analysis between these two areas reveals interesting differences with regards to both goals and instruments used. Both aim at economic growth and to some extent social welfare, but whereas SME policy focuses on job creation (cf. Rothwell, 1984), STI policy focuses on national competitiveness through the development and diffusion of new products and processes (cf. Lundvall and Borrás, 2005), which does not necessarily go hand-in-hand with job creation. Moreover, whereas an explicitly aim of SME policy is to improve attitudes and conditions for founding new firms (Storey, 2003), STI policy focuses on technology, products and processes and shows little interest in whether innovation happens in new or established firms (cf. Lundvall and Borrás, 2005). With regards to the policy instruments used, both policy areas include financing, networking initiatives, regulation, education and training, but with quite different foci in terms of the level of aggregation of support initiatives (individual ventures vs. innovation system) as well as target types of NTBFs: The focus of SME policy is to support individual ventures, whereas STI policy aims at building or strengthening innovation systems, i.e. to remove system weaknesses (Jacobsson and Johnson, 2000; Klein Woolthuis et al., 2005) by improving the infrastructure for primarily research-based firms, often in specific technology fields.
The third part of the paper compares the demand side and the supply side and identifies the main shortcomings of existing public support to NTBFs as a basis for recommendations on how to improve the support portfolio. First, there is a bias in the public support portfolio towards some types of NTBFs, most notably academic spin-offs, whereas for example corporate spin-offs and independent inventors are overlooked – irrespective of their support needs. In order to overcome this bias, policy makers need to align the supply of support to NTBFs with the support needs of the targeted firms. Second, market aspects are under-emphasised in comparison to technology and product aspects, both in individual-level support and system-level support. Thus, both the firm-level support and the system level support would benefit from measures developing marketing and sales capabilities of individual ventures or stimulating entrepreneurial experimentation and market formation on the system level. Third, there is a missing link in the support instrument portfolio: NTBFs frequently lack the information, competences and networks needed to identify and connect to relevant innovation systems, but the current support portfolio includes few measures to assist them with this. The support portfolio should therefore be complemented by mediation (Bergek and Norrman, 2008) between individual firms and relevant innovation systems, i.e. support measures helping NTBFs to access and utilise resources on the system level.
To sum up, we recommend policy makers from SME and STI policy to (1) take into account that NTBFs have different support needs and to align their support to the needs of the targeted firms, (2) increase the market focus of the supplied support and (3) complement the current support portfolio with instruments directed at mediation between individual firms and relevant innovation systems. Implementing these recommendations would, however, require increased co-ordination between SME and STI policy, which is our forth and final recommendation to policy makers.
Technical Change: History, Economics and policy: A Conference in Honour of Nick von Tunzelmann