Financing of innovations – thresholds and options

Abstract

The paper investigates thresholds and options for financing innovation activities in manufacturing and services using data from the German Community Innovation Survey (CIS) 2007. We analyze the significance of financing restrictions, especially the role of internal financing, external capital, and public funding, and discuss applicable management options to cope with challenges in markets and technology. We find that most firms rely mainly on selffinancing means to start an innovation project. As a consequence of information asymmetries, private investors, e.g. banks, are uneager to invest in risky innovative ventures. Public funding might complement internal financing in order to balance shortcomings in private capital provision, but these sources have to be identified and convinced. In sum, the empirical work states that financing innovation is an entrepreneurial task, and the management of innovation needs strategic thinking as well as a well defined capital portfolio policy.Financial management, innovation and entrepreneurship, business policies and strategies.