Special aspects of technological entrepreneurship financing at the present stage
MATEC Web of Conferences
Special aspects of technological entrepreneurship financing at the present stage
Anna Rumyantseva 0
Viktoriia Bichurina 0
0 Private Educational Institution “St. Petersburg University of Management Technologies and Economics” , 44, Lermontovsky Prospekt, 190103 St. Petersburg , Russia
Technological entrepreneurship is a new trend of the world economy. The main sources of technological entrepreneurship financing are “business angels”, venture capital funds and innovative partnerships. The activation of innovative processes in the scientific and technical sphere becomes an important condition for the highly efficient economy creation. Today the search for innovation financing sources has assumed a special significance, since the innovative economy is characterized by the institutional and business environment mobility and the peculiarity of managing the technological entrepreneurs activities. The modern economy forces to search for new growth areas. From the author's point of view, it is technological entrepreneurship. In this regard, investment partnerships acquire special importance as a way to finance innovation in the country, and also as a way to hedge investments.
The modern world with its high speeds and modern technologies are characterized by a
constant change in the business environment. In this regard, the analysis of the current
standing in the entrepreneurial sphere and the analysis of the main trends in the technological
entrepreneurship development become significant. Technological entrepreneurship becomes
a “growth area” in the innovation-oriented economies of the world.
The state of entrepreneurship in the country can be judged by different indicators that are
analyzed by international organizations and institutions. One of them is the TEA – the index
of entrepreneurial activity in the early stages (Total entrepreneurship activity index) that is at
the level of 6.27 in Russia as well as in Sweden and Finland, according to the studies results
of the GEM International Institute . But this indicator does not show a direct relationship
between entrepreneurial activity and GDP per capita, as it does not include a more important
study – a business survival characteristics.
According to statistics, in 2016 the level of newly created enterprises in the Russian
Federation reduced. So for the period of 2016 first half it was less newly created commercial
companies than those that ceased to exist – 218.5 thousand against 242.4 thousand; the
organizations official liquidation ratio was 149.2 for 2016 against 67.4 for 2015 per 1000
organizations in Russia .
The main reason, in our opinion, is connected “with a high degree of uncertainty in the
economy and negative investment expectations” on the part of business that means a decrease
in the possibility of entrepreneurship survival in the current conditions .
2 Materials and methods
Today the technological entrepreneurship with its serial forms identification is the world
economy regularity, and this applies not only to the information technology sphere. It is the
topic of serial technological entrepreneurship in the world that is key in discussing the issue
of entrepreneurial activity, economic development in general and economic growth in
Technological entrepreneurship (innovative) is a special type of activity that has its own
specifics. The classical concept of entrepreneurship implies the independent activities of
people aimed at making a profit, that is activities that rely on human and financial resources.
There is one more feature in technological entrepreneurship that distinguishes it from
ordinary entrepreneurship. It is a new product or new technology. It appears when no
previously existing product or technology of its manufacture occurs. This third feature
radically changes ideas about entrepreneurship, as it provides innovative technological
entrepreneurship with a number of properties.
The basis for ordinary entrepreneurship is production efficiency and cost reduction. With
this property, the entrepreneurship focus shifts to mass production, whereas for technological
innovation entrepreneurship nothing is more important than the creation of a new product
with its subsequent commercialization. It is the basis of competition. In support of the above,
there are a number of examples of innovation companies failures only because a product with
similar properties had appeared a few months before they appeared on the market. In these
examples the cost component is not significant.
Technological entrepreneurship changes the basic law of the “demand breeds supply”
economic theory, as it creates a product or technology that has not been claimed or creates
new functions of already known and demanded things. It is impossible to estimate the
demand in this case.
Another property of innovation entrepreneurship is that appearance of a new product or
technology creates a necessity to search for a consumer who does not always realize that he
has such a need. Consumer training can be considered as a new direction of entrepreneurship.
The next property of innovation entrepreneurship is the specificity of technological
entrepreneurship subjects motivation: income is a tool for creating something new, when for
ordinary entrepreneurship income is a fundamental motivation. It does not prevent innovative
companies from having a high market capitalization, this is a parallel process. But the original
task is still the innovation itself. These companies often work without profit, but with a
rapidly growing capitalization. This is the peculiarity of technological entrepreneurship, as a
special kind of activity that breaks down many economic laws.
The process of innovative entrepreneurship is difficult to describe and formalize. Let us
consider the process of innovative entrepreneurship development in terms of financing, based
on the above mentioned features (source of financing; innovative product / technology;
Today we can identify the following sources of innovation financing, each of which can
be used at a certain time interval, depending on the stage of innovation:
venture capital funds;
The technological entrepreneur formation, his development will be based on the proof of
a new idea. As a rule, the source of funding at this stage is a grant, i.e. nonrepayable money.
If the concept of innovation is proved, this stage will be passed.
The next stage of such entrepreneurship is a new product creation by the team, i.e. the
group of innovators who are engaged in a prototype product with proof of this innovation
operability. At this stage there is also grant financing or funding with the help of “business
angels”. “Business angels” are one of the main elements of the modern international business
economy. These are professional investors (individuals and legal entities) investing part of
their own finance in innovative companies in the early stages of development – “seed” or
“start-up”. The overwhelming majority of “business angels” are successful entrepreneurs
who have extensive experience in developing their own business. In most cases “business
angels” are men (99%) aged 45 to 65 who have a university degree and managerial
experience. Every fifth of them, according to studies of western sociologists, is a millionaire
“Business angels” most often invest in technology and intelligence, preferring high-tech
start-ups and Internet projects. They help innovative projects to overcome the period of
formation with their own capital, and become the main source of external financing for
companies with the potential for rapid growth. “Business angels” can invest not only in the
finished project, but also in the idea that it is impossible for an institutional investor (a large
financial institution). Many “business angels” advise and provide free assistance to their
clients, as they are experts in business.
“Business angels” are professional venture capital individual investors who are focused
on supporting start-ups. Unlike classical investors who can pay attention to the newcomer of
the business, but this will not become their main strategy. They invest their own money,
unlike investors managing other people’s funds. “Business angels” always have personal
involvement and expertise, investing in projects. They have the ability to make financial
decisions more flexibly than venture capital funds. They have broader investment horizons
(“long term money”), the execution process is easier and the investment return rate is lower.
It is cheaper to attract financing from “business angels” than from other financial institutions.
The financial market of “business angels” is more diverse geographically than the venture
capital market. “Business angels” prefer to finance high-risk entrepreneurial companies with
great growth potential, preferably at the very first stage of their development. Russian
“angelic” investments are not developed much. Given the small number of domestic projects,
Russian “angels” still prefer start-ups with Russian origin in the US, Europe and Israel. Today
there is an association of “Business angels” in Russia consisting of several tens of thousands
of professionals .
After the innovation working capacity has been proved, the production of a commercially
available product takes place, which means that the next method of financing with the help
of venture capital funds is needed.
Venture capital funds are companies that invest money, primarily in order to repay their
investments. These funds finance only legal entities.
Venture capital funds invest in securities or shares of enterprises with high risk in
anticipation of high profit. The share is provided to the fund in standard units – as shares that
cannot be immediately exchanged for real money, since these securities are not quoted on the
stock market due to the fact that companies are not registered at the exchange. The venture
capital fund income is not fixed, it usually invests in a portion of the shares, but not a
controlling stake, so that the enterprise does not lose the motivation for development.
Whether venture capital fund calculations are justified will become clear only when it leaves
It should be noted that the effectiveness of the innovative projects commercialization is
also influenced by the innovation infrastructure development in the regions, regional
innovation potential, the interest of regional authorities and investors in supporting new
projects. This is not just about financing and/or stimulating the innovative activity of
economic entities itself, including small innovative enterprises affiliated with the leading
higher educational institutions of this or that region, but also financing and stimulating
organizations that support and provide services to innovative companies. The most effective
way to finance a growing economy is leasing. The current policy of import substitution
enables the leasing sector to supply equipment for the producing units retooling, which
stabilizes both the leasing sector and the economy as a whole .
Concerning foreign countries, it should be noted that the venture financing industry is the
most developed in the United States and a number of European countries (Britain, the
Netherlands, Germany, France, etc.). In Great Britain and the USA, pension funds actively
participate in financing innovative projects that, on the one hand, allows innovative
enterprises to receive state support, and, on the other hand, enables the funds of these
countries to profit in the event of the investment project successful completion.
Unfortunately, in Russia non-state pension funds, as a rule, participate in financing low-risk
and at the same time low-profit projects, although it is possible to find proposals acceptable
in terms of risk and profit margins in the sphere of innovation and high technologies.
In the UK an innovative infrastructure is also developed, including business incubators,
innovation centers and technology parks. In France the leading positions in the venture
financing market are occupied by banks and insurance companies, in Germany – by banks
and private investors. Israel is the recognized leader in the venture financing development,
the share of R & D spending in its GDP is the highest in the world.
The venture financing effectiveness in foreign countries depends largely on the degree of
its state support, the legislative framework development, and the state interest in the
innovations development. The state provides loans, state guarantees, tax incentives for
venture companies, it also takes part in innovative projects co-financing or venture funds
creation along with private investors. In our opinion, the same mechanisms should be widely
used in Russia.
The advantages of such financing are:
Venture funds do not need to pay annual or quarterly interest payments.
Venture capitalists give money for a long time.
Venture funds do not require liquid liens for investment that start-up companies
Venture fund investors fully assume all financial risks, without requiring any
Venture funds become voluntary business partners with company founders, when
Venture funds cannot declare a company bankrupt or bring legal action if it fails to
fulfill its obligations on time.
Venture capital can be used as an additional to medium-term and long-term loan
Venture capitalists do not change the amount of profitability for the whole period of
company development, they do not require to insure their risks.
Due to the fact that venture capital funds put up money only for legal entities, a
technology entrepreneur needs to change its status and become a legal entity. After that
smallscale production begins. But to enter the mass market with a large volume of production and
the product sales, venture funds financing is not enough. At this stage of innovation
development, it is necessary to join the innovative partnerships funds (PE Fund). These
financial organizations function within the framework of the Federal Law No.335-FZ “On
Investment Partnership” dated 28 November, 2011 with the aim of investment projects
]. Having received funding from investment partnerships, the entrepreneur
goes to the stage of growth and begins active sales.
Quite often, even this stage is not enough to enable technological entrepreneurship to
reach payback. In this case a further option is financing with the involvement of public
companies (IPO/Buyout fund) that are joint-stock companies, and carry out their activities
under the Federal Law No.99-FZ “On licensing of certain types of activities” of 04/05/2011.
Table 1 shows the main characteristics of the technological entrepreneurship development
stages, indicating possible sources of financing, depending on the innovation idea
Another way to finance technology entrepreneurship is to attract small innovative
enterprises to state conversion programs and projects that are the most knowledge-intensive.
There are some limitations, requirements and shortcomings in such financing:
compliance with specified standards;
technical difficulties in obtaining;
small amount of financing.
Along with the shortcomings, there are also advantages:
implementation if commercial financing is not possible;
loyalty in payments and terms of the resource usage.
In the conditions of the modern world turbulence, the state increasingly channels financial
flows to the military-industrial complex, where the attraction of innovative small enterprises
is more appropriate. State financing can significantly influence the technological
entrepreneurship development in the country. But, according to experts, today this method
of financing is mainly available only to large enterprises and is no more than 5-10% of the
From the point of view of technological entrepreneurship support, the state can develop
production sites of many universities and secondary specialized educational institutions,
where small innovative enterprises could be located. Using subcontracting with large
enterprises and other economic agents for scientific research, small technological structures
can receive the necessary consultations and training. Most universities have a powerful
professional and technological base for placing and examining innovations. Creation of an
expert council from university specialists in various fields, as well as entrepreneurial
scienceintensive structures of different levels, will increase the interest of potential investors to
participate in technological entrepreneurship projects that in turn will lead to the growth of
small and medium-sized enterprises in the country that form the basis of the economy.
In foreign countries the following instruments of tax incentives for innovation are applied:
investment discounts on income tax (Great Britain, Belgium, Denmark, Austria,
Australia, Singapore, etc.);
Research tax credit (USA, Canada, Mexico, Japan, Republic of Korea, Italy, France,
preferential terms for depreciation of fixed assets (Great Britain, Ireland, France,
investment tax credit (USA, Philippines);
investment subsidies (Singapore);
tax holidays (South Africa, Republic of Korea);
preferential VAT rates for the sale of goods with an innovative component (Great
Britain, Germany, Italy), etc.
In Russia, there are such forms of tax incentives for innovation as :
exemption from VAT in the R & D implementation and the enjoyment of rights for
the innovation activities results;
income tax exemptions when accounting for R & D expenses (raising coefficients);
exemption from the profit tax of the targeted financing funds;
application of increasing coefficients of fixed assets depreciation used in scientific
and technical activities (accelerated depreciation);
granting an investment tax credit to taxpayers engaged in R & D.
Such forms of indirect state stimulation of innovation activities should be widely used,
an integrated and systematic approach is needed to assess the appropriateness and
effectiveness of applying tax incentives that will help stimulating innovation.
During the domestic and world economy instability the issues related to the search for the
most rational ways to follow the trajectory of sustainable growth and gain a new level of
development are being actualized, the qualitative parameters of this development are
determined by the postindustrial society innovative type.
Transnationalization of innovative business in western economies leads to its dual
position: on the one hand, this type of business develops within national innovation systems,
but, on the other hand, it is an element of innovative systems of regional integration
associations of countries with developed economies. The latter act as local innovation
systems, but the trend towards their convergence and merger in the future will allow to define
this trend more precise as a tendency to form a global innovation system. However at the
present time, in our opinion, due to the effect of differently directed factors, it is still too early
to determine even the contours of such system.
At the same time, strengthening the role of the international influence factor on the
economy determines the business development institutions support specifics by western
countries. In the developed system of state support for business development institutions at
the international level, first of all, innovative and venture ones, the following elements can
– firstly, supragovernment development institutions operating in the space of regional
associations (for example, the European Union, OECD, MERCOSUR, NAFTA, etc.);
– secondly, the development institutions established within international organizations of
the United Nations (UNCTAD, IMF, MCE, etc.);
– thirdly, the development institutions operating through interstate agreements aimed at
creating major investment and innovation projects;
– fourthly, special structures have been created in the embassies and trade missions –
departments promoting the innovative business development in the countries of its
– fifthly, state bodies supporting the national business development abroad (for example,
OPIC in the USA);
– sixthly, chambers of commerce and industry and offices of the national chambers of
commerce and industry, carrying out business promotion in all countries, including Russia
– seventhly, informal voluntary associations of large, medium and small businesses
representatives for the purpose of forming social capital, establishing informal
communication, and personal relations between representatives of national and foreign
businesses (business associations);
– eighthly, consulting companies that are supported at the intergovernmental and
governmental level, for example, the organization of business consulting for international
– ninthly, charitable foundations.
The structure of business development institutes includes:
• financial institutions, whose activities are aimed at innovative and
innovationinvestment business activities financing or co-financing;
• non-financial development institutions, whose activities are aimed at non-financial
support and promotion of innovative business activity through, above all, administrative and
In the European Union countries there are institutions for the innovative entrepreneurship
and venture business development at the national and local levels. According to the report on
the results of the European Innovation Assessment application for 2016, innovative leaders
with the best national innovation systems are Switzerland, Finland, the United Kingdom, the
United States, and Sweden. Outsiders in this report are Bulgaria, Latvia, and Romania. In the
second position, Ireland, Austria, Belgium, France, Ireland, Luxembourg, the Netherlands,
Slovenia are naturally named as “following the innovations”. At the third, middle position,
there are countries that are not named above.
In business economies in industrially-oriented countries, including Russia, growth areas
are social, youth, environmental, and regional entrepreneurship. This is undoubtedly
confirmed in the research works of domestic authors such as V. Gimpelson, A.A. Alekseev,
A.E. Karlik, A.N. Kazantseva.
In the economies of innovation-oriented countries, technological entrepreneurship
should be considered as the growth area. This is noted by a number of authors considering
the entrepreneurship development innovative factor such as V.A. Plotnikov, O.V. Burgonov,
N.P. Golubetskaya and others.
Among the main ways to find financing sources, investment partnerships generate interest
as a new organizational form.
Investment partnerships consist of two types of members: the managing partner (General
Partner) – the one who manages and the LP partner (Limited Partner), who only invests. GP
is liable to the full extent of its property, and LP – only of the amount of property contributed
and therefore has no right to be included in the selection of projects and evaluate them.
As a rule, one investment partnership has several funded project companies. Investing in
several investment projects simultaneously allows to solve one of the most important tasks
of any business – hedging risks. Diversifying the investment portfolio in various areas of
innovation, the investment partnerships have become unique organizational form with such
a fundamental property in Russia and in the world.
The next fundamental property of the investment partnership is the motivation
mechanism of the management company within the partnership: short-term motivation – 2%
of the current value of assets under management annually; long-term motivation – 20% of
the growth obtained after a successful exit from the investment. In this case, the interests of
investors and the management company are completely the same. Such motivation
mechanism, coordination of interests within the partnership does not exist in any
organizational and legal form of ordinary entrepreneurship.
This business industry (PE) appeared only about 25 years ago and is developing
intensively. For comparison, the world banking system assets in 2016 amounted to 20.6 trn.
US dollars, and PE assets – 3.5 trn. US dollars and the growth rate is much larger than the
banking system .
Thus, this form of financing organization allows to combine financial and organizational
efforts of several participants for investing in risky projects or projects requiring large
investments. The introduction of the investment partnerships institute will contribute to the
creation of legal conditions, primarily for the development of an innovative economy, the
implementation of business projects in the innovation sphere, the activation of collective
investment activities of Russian and foreign investors.
Technological entrepreneurship becomes a “growth area” in the innovation-oriented
economies of the world. This indicates a new phase in the civilization development, where
the main products are information and knowledge; the phenomenon of technological
innovation entrepreneurship changes the business economy model, its management
mechanism, including methods and tools, giving it new fundamental properties, forming the
modern economy core; the development of investment partnerships network and venture
capital should be viewed simultaneously with the solution of the problem of small and
medium-sized businesses technological re-equipment in this area that is the main task facing
the modern Russian economy. In this regard, the experience of Germany should be taken into
account, where these costs are borne by the state; technological entrepreneurship becomes a
bright feature of the future innovative-oriented economy of Russia.
A. Rumyantseva, Transactions of St. Petersburg University of Management
Technologies and Economics 2, 41-52 (2015)
1. Federal Law dated 28 .11.2011 No. 335 -FZ “On Investment Partnership”, CL RF 49 , 1 ( 2011 )
2. RF Government Resolution dated 8 December 2011 No. 2227-р “On Strategy of Innovation Development of Russian Federation for the period until 2020”, CL RF 1, art . 216 ( 2011 )
О. Aleksandrova , E. Ivleva , V. Sukhacheva , A. Rumyantseva , E3S Web of Conferences 33 , 03057 ( 2018 ) doi .org//10.1051/e3sconf/20183303057
URL: https://www.vedomosti.ru/economics/articles/2015/12/24/622281-vzglyadekonomistov -chego-opasatsya-i-nadeyatsya-2016
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