How does Funding from Innovation Norway Impact Start-Ups’ Profitability, and What is the Effect from an Entrepreneurial Perspective?
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In order to survive the crucial first phase, start-ups rely on different sources of funding. Whilesome start-ups manage with the traditional forms of raising capital such as providing own capital,through family and friends, loan at the bank or by external investors. For a lot of start-ups, this isnot sufficient, and additional funding is required. This is where national innovation systems canhelp alleviate the gap between start-ups and the necessary capital to succeed. Previous studies haveproduced mixed results, but most agree that innovation subsidies help foster innovation andeconomic growth. Few studies have been conducted on the Norwegian subsidies program,Innovation Norway (IN) in particular. This thesis set out to understand the impact of funding fromIN on a firm-level by answering the following questions: Does funding from Innovation Norwayaffect the profitability of start-up companies? Does this impact vary across industries and regionsand depend on the time of being granted? What is the impact of funding from IN from anentrepreneur’s perspective? In Part 1 of the thesis, we utilized several regression models where we tested the impact of fundingin logarithm on return on assets in year 2. Additionally, we tested for differences between severalfactors such as industries, regions, and time from when the company was founded to when it wasfunded. The dataset we used contained companies that were started between 2014 and 2017 andreceived funding from IN in 2016 or 2017. The dataset also included relevant financial informationand information about the funding that was received. In Part 2, we conducted an interview withthe CEO of an Agri-Tech start-up to gain valuable insights on the application process and theimpact of the funding from an entrepreneurial perspective. The regression results indicate a small but significant positive effect of funding from IN on startups. Regarding industries and regions, the results are insignificant, indicating no noteworthydifferences. Furthermore, we found that start-ups that spent between 8 to 14 months from foundedto funded had significantly more negative ROA in year 2. From our results we derive the followingrecommendations: Applying for funding from IN should be top priority for start-ups unless theyare strapped on time and meet the right investor at the right time. Funding from IN can be acertification of their business and reduce the information asymmetry when meeting externalinvestors later on. Lastly, IN should stream-line its application process to not waste the start-upstime