Financing Innovation : Strategies of Established Versus Start-Up Ventures

Technological innovation, although vital for sustenance of firms against fierce global competition, presents a paradox in micro-economic theory on the managerial decisions related to the financing of such innovation. In particular, budgeting decisions in R&D and innovation at the firm level do not conform to customary neo-classical approach of allocating resources based on the rationally determined priorities of the organization. This is partly because of the inherent uncertainty and unpredictability of the innovation process. Moreover, financing of innovation in large organizations is basically a different proposition than in small and medium enterprises (SMEs). Notwithstanding the relative abundance of resources in large organizations, allocations for R&D are perennially inadequate. Although for different reasons, financing of R&D in SMEs is equally or more difficult. All these clearly point towards the need for developing innovative practices in financing innovations. This paper reviews the special problems involved in financing innovations and offers some illustrative examples of innovative practices in the field with a view to providing some guidelines for policy and practice in the future for such a critical activity that affects the very survival of enterprises