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Citizen today, July 2012 - Entrepreneurs benefit from government assistance as they grow - EY - Global

Citizen today, July 2012

Entrepreneurs benefit from government assistance as they grow

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Governments have an important role to play in helping entrepreneurs establish networks of relevant contacts.

Long recognized as crucial to economic development, entrepreneurs are increasingly seen as crucial for sustainable recovery. Much more needs to be done, however, to ensure these engines of growth have the necessary access to finance — and policymakers have a key role to play.

Government incentives

It is clear that government has a vital part to play in facilitating and encouraging entrepreneurial development. Because business development is not a single stage process, government incentive programs needs to recognize the life cycle of entrepreneurial companies. Learn more about this issue in our report Funding the future: access to finance for entrepreneurs in the G20.

The combination of multiple stages of business development and multiple funding sources available at each stage creates a complex group of touch points where incentives could impact the funding ecosystem.

Government’s role is to stimulate that funding ecosystem and provide comprehensive support within this very complex space.

Take a closer look at when and how governments can help entrepreneurs.

Pre–seed and seed: At the pre-seed and seed stage of growth, the entrepreneurial business is just being established. One way governments can help is by putting in place appropriate regulatory frameworks that can enable innovative funding mechanisms, such as crowdfunding, to flourish.

Crowdfunding is a way of attracting small amounts of funding or donations directly from multiple investors using social media and internet channels.

Start–up: At the start-up stage, an entrepreneur begins the process of demonstrating the commercial viability of their business. Beyond facilitating the funding itself, governments have an important role to play in helping entrepreneurs establish networks of relevant contacts and gain insight into how to access angel funds.

Emerging growth: Once an entrepreneur has been able to demonstrate a market for his or her product or service, the venture enters the emerging growth stage. The company will be earning revenues but is unlikely to be sufficiently profitable to fund its own expansion.

Policy-makers therefore need to reinforce measures that give financial institutions the confidence to lend to SMEs.

Expansion: The final stage of the entrepreneurial growth journey is expansion. By this point, the company has proven that its business model is effective and the focus shifts to rapidly scaling up the venture to capitalize on the growth opportunity.

We believe that governments need to avoid stifling Private Equity activity with more regulations. Regulatory tightening around the world has made it more difficult for institutional investors to allocate capital to investments that are perceived as more risky.

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