A cross-country study on investment readiness. How can entrepreneurs increase attitude towards equity finance?

The creation and growth of high quality Small and Medium-sized Enterprises (SMEs) contributes to improvements in productivity from which the whole economy can benefit. However, the presence of market imperfections create difficulties for SMEs seeking external sources of equity finance to support the early stages of their growth. From the supply side, this equity gap is created by high transaction costs, ongoing running costs, high risk and uncertainty, and lack of exit options. From the demand side, the entrepreneurs‘ limited understanding of equity instruments, poor intrinsic quality (and presentation) of business plans, and a reluctance to share/cede control reduce the attractiveness of SMEs to formal equity financiers. We term such SMEs as ̳not investment ready‘. In order to tackle this crucial component of the equity gap, a range of targeted measures have been designed to increase the level of investment readiness and thus help those SMEs that wish to attract equity finance. This report will review publicly funded (either in whole or in part) investment readiness schemes in different countries (the European Union, USA, Canada, Australia and New Zealand), with the aim of understanding: (a) how effective these schemes are, (b) the extent to which they have been evaluated, (c) the results of the evaluations (d) and what lessons can be learned in designing future UK policies.