The investment behaviour of Italian innovative start-ups : the role of law 221/2012

While the prominent role played by young innovative companies in promoting an innovation-driven economic growth is widely recognised, there is also general consensus that the beneficial effect exerted by such companies might be hampered due to the financial constraints binding them. The provision of venture capital (VC) is considered the most suitable solution to overcome these problems. Accordingly, the underdevelopment of the European VC market is alleged to be a primary cause of the performance gap between US and EU innovative start-ups. In order to remedy these deficiencies, the intervention of policy makers is strongly advocated. In this perspective, the Italian government has recently developed a first and comprehensive policy scheme directly targeting innovative start-ups, that is Law No. 221/2012. In particular, among the various facilitations envisaged by Law 221, some are specifically designed to favour innovative start-ups’ access to external debt (Government-guaranteed bank loan program) and equity (fiscal incentives for VC investments; equity crowdfunding platforms). The overall objective of the present study is to investigate the determinants of Italian innovative start-ups’ investment, with a particular emphasis on the effects stemming from accessing VC and guaranteed bank loans. Results suggest two relevant facts. First, both external equity and debt capital are found to positively impact on innovative start-ups’ investment rates, thus providing early evidence of public intervention success. Second, the amount of guaranteed bank loan turns out to be surprisingly uncorrelated with company investment rates. A possible interpretation of this unexpected outcome, even if not yet corroborated by a thorough analysis, is that the access to the CGF opens up further possibilities for the recipient companies, in line with a possible “certification effect”.