FUNDING FOR INNOVATION IN SMALL FIRMS - THE ROLE OF GOVERNMENT

This paper examines some of the issues facing innovative small firms. The shortage of enterprise funding for such small firms can be explain ed by the uncertainty associated with such ventures, uncertainty which is magnified in the case of high-technology firms. We characterise th e uncertainty as an information gap (both technological and commercial ) which is exacerbated by an asymmetry of interest between the founder s of a firm and private sector sources of finance. We explore the sour ces of this uncertainty and examine the effect that one Government sch eme, the Small Firms Merit Awards for Research and Technology (SMART), has had in offsetting such problems. Some suggestions for improvement s in policy in the light of the experience of SMART are put forward.