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SMEs and Innovation Financing in Croatia:Imlications for a National Innovation System

Building a national innovation system presupposes venture capital companies (VCCs) that can help innovative small and medium-size enterprises (SMEs) in Croatia grow through financing and by taking on an active role in their strategic management and as organizers of production networks. SME in Croatia face barriers to doing business because of the underdeveloped institutional environment and its legal enforcement, corruption, lack of both coordination and coherence between different ministries, programs and SMEs. In addition, entrepreneurs often have a lack oh know-how and quality education for developing innovations. Big domestic companies are less present in high technology sectors and have therefore create less demand for innovation from SMEs. The financial sector is not oriented towards innovation financing. The first Croatian Community Innovation Survey conducted for the period 2001-2003 shows that innovative SMEs in Croatia face especially high financial barriers. Entrepreneurs are usually not familiar with both VCCa existence and functioning. Consequently, relatively few SMEs in Croatia have received funding from a VCC and early stage venture capital investments are especially rare. The interviews we had with managers of the VCCs in Croatia revealed they faced low deal flow and exit problems. Moreover, venture capital funds are not regulated by law and hence do not have necessary tax incentives. Both growth of innovative SMEs and development of VCC industry in Croatia require a better business environment in the short term and coordination between industry, state and scientific institutions as well as foreign direct investment bringing high technology in the medium to long term.

SMEs; Inovation financing; Croatia; venture capital

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