New technology-based firms in Europe

The European Innovation Monitoring System (EIMS) has published a report on "New technology-based firms (NTBFs) in Europe". The report provides an executive summary, including policy recommendations, of a study carried out, on behalf of the European Commission, by the Centre fo...

The European Innovation Monitoring System (EIMS) has published a report on "New technology-based firms (NTBFs) in Europe". The report provides an executive summary, including policy recommendations, of a study carried out, on behalf of the European Commission, by the Centre for Small and Medium-Sized Enterprises of the University of Warwick (UK).

The report carefully documents the development of NTBFs in 16 European countries and points to some factors which constrain the development of these types of firms in Europe. This review reveals that little has changed in the past 20 years and that Europe continues to lag behind the United States in this area.

Three key policy issues are discussed in the report:

- The supply of entrepreneurs:
European countries need to do significantly more to increase both the quantity of individuals prepared to become entrepreneurs and to enhance the quality of the businesses which these individuals establish;

- Financing of NTBFs:
There is a fundamental difference between Europe and the United States in the extent to which the venture capital industry is willing to invest in early stage technology-based venture. In the United States, about three quarters of early stage funding focuses upon the technology-based sectors, whereas in Europe it is about one quarter. Public policies in this area need to focus on reducing the uncertainty faced by financial institutions;

- Public policy frameworks:
The "special" requirements of NTBFs are not adequately reflected in the framework of support services available. In most countries, whilst support is available to new and small technology-based firms, the same support is available to other types of enterprises.

The authors devise a new methodology for assessing the contribution of NTBFs and conclude by emphasizing that, if matters are to change in the next twenty years, policy needs to recognize the special characteristics of this sector.