Italian young innovative companies and their financial needs : the role of law 221/2012

Several studies have highlighted that young innovative companies (YICs) are often financially constrained in a way that hampers their growth and threatens their survival. Therefore, these kind of firms are likely to need external financing coming from private or public investors. The provision of venture capital (VC) may allow firms to overcome these obstacles. However, the support by a VC may be limited, especially in bank-based countries such as Italy. The public sector may try to intervene and relax the constraints suffered by YICs through the implementation of a various set of instruments. In this regard, Italy has developed a wide policy program (i.e. Law 221/2012) that offers a menu of facilitations directed to a specific category of firms identified as “innovative start-ups”. Firms that fall within this category benefit from faster procedures, facilitations, tailor made regulations, individual support and direct access to the Guarantee Fund for Small and Medium Enterprises, which covers most part of the credit issued by a bank. This study investigates the determinants of YICs access to the public guarantee fund and venture capital. The analysis gives a better understanding of the investment selection criteria adopted by VCs and it draws some considerations on the effectiveness of the Law in relaxing financial constraints. Moreover, the study tries to identify the existing relationship between private and public investors: it aims to assess the existence of a complementary/substitution effect exerted on each other, and the presence of a certification effect. In order to do so, the research study considers a sample of 2526 Italian innovative start-ups and resorts to the estimation of a dynamic bivariate survival model to highlight simultaneously the determinants of firms’ access to both these modes of financing. The results of the estimates confirm the relevance of founders’ competencies as important drivers of VC investment decisions, while the public sector is found to limit the evaluation to firms’ financial properties. In the end, the findings suggest the absence of both substitution and complementary effects between private and public funds.