policy as integrator

1. Nurturing and growing innovative
start-ups: the role of policy as
integrator
Bart Clarysse and Johan Bruneel
Ghent University and Vlerick Leuven Gent Management School, Hoveniersberg 24 and Reep 1,
9000 Gent, Belgium. Bart.clarysse@vlerick.be; Johan.bruneel@vlerick.be
Nurturing and growing innovative start-ups have become an important point on the political
agenda. After the dotcom bubble, however, many financial schemes and incubation initiatives
initiated, in the mid-nineties, were cancelled or down scaled. There was a consensus that
innovative start-ups need more than just money. Networking and coaching were identified as
additional needs. Besides this, there is a change in the intensity and nature of these needs
during the different stages of the early life cycle. In this paper we make an in-depth study of
three approaches to nurture and grow innovative start-ups. Each of these initiatives embeds in
a very different national innovation system: Chalmers Innovation in Sweden and Anvar/
Banque de Développement des PMEs in France, and Sitra’s PreSeed Service in Finland. Each
approach is compared in terms of its financing, networking, and coaching support, along the
different stages of the start-up’s life cycle.
1. Introduction
Start-ups are seen as important vehicles for
economic growth (Storey and Tether, 1996;
Heirman and Clarysse, 2004). Several studies,
however, suggest that the growth rate is concen-
trated in a tiny proportion of very fast growing
start-ups (Storey, 1994; Autio and Lumme, 1998).
This means that most innovative start-ups either
do not grow at all or cannot overcome the liability
of newness and therefore drop out.
Most researchers indicate several factors as
barriers for growth or reasons to drop out. This
may differ along the early life cycle of the start-
up. The life cycle approach assumes that each
cycle represents a unique, strategic context that
influences the nature and extent of a firm’s
external resource needs and resource acquisitions
challenges. A firm must overcome the resource
needs and resource acquisition challenges in each
phase to successfully survive and grow (Churchill
and Lewis, 1983).
Since the mid-nineties, various European coun-
tries have taken many initiatives to bridge the
perceived ‘financing gap’ of enterprises at
start-up (Heydebreck et al., 2000; Cieply, 2001;
Pollock and Scheer, 2002). Israel, France, and
Sweden launched their National Incubation Pro-
grammes (Roper and Mawson, 1999; Jacob et al.,
2003), and Germany initiated the EXIST and
BIOREGION programmes and financially sup-
ported certain elected regions (Dohse, 2000).
Despite the noble aims of these public/private
partnership programmes, the few studies, which
evaluate the outcomes, remain inconclusive
(Roper and Mawson, 1999; Colombo and
Delmastro, 2001). The reasons, formulated in
the literature for the mixed results, are converging
in the acknowledgement of the importance of the
institutional set-up of public incubators as part of
a coherent system
Jacob et al. (2003) illustrate in their discussion
of the Chalmers initiative in Sweden that the
RD Management 37, 2, 2007. r 2007 The Authors. Journal compilation r 2007 Blackwell Publishing Ltd, 139
9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main St, Malden, MA, 02148, USA

2. decentralised approach to different entrepre-
neurs leads to sub-optimisation and frictions
between the different legal entities. A centra-
lised approach to support innovative start-ups,
which encompasses advice, networking, and
finance, seems to be favourable (e.g. Hansen
et al., 2000).
Further, Jacob et al. (2003) suggest that any
initiative that wants to support entrepreneurs in
setting-up innovative companies should embed
in a larger national innovation system, which
aims at the same. For instance, stimulating
entrepreneurship at universities stays ineffective
if the university public grants are solely based
on research output as a main determinant. This
is in line with Sherman (1999) who illustrates
that incubators are ineffective if they remain
isolated agents in the process of stimulating
entrepreneurship. Especially incubators that
start to act as private equity investors fall short
in realizing their results.
In the light of these findings, it is not surprising
that most of the private incubation initiatives
closed as the implosion of the internet bubble.
The remaining incubators are usually (partly)
funded publicly or scaled their operations down
to the basic services that any business centre
usually offers. After the shakeout, some models
remained visibly active and even become bench-
mark standards for stimulating and nurturing
new companies. However, what makes these
models then so successful? Alternatively, does
the success relate to only certain components?
For this paper, we have performed three in-
depth case studies of regional models that were
identified by local experts as being successful: the
Swedish ‘Chalmers’ model, the French model with
Anvar, Banque de Developpement des PME
(BDPME) and Caisse des Depot et des Credits
(CDC), and the Finnish ‘Sitra’ model. We try to
detect the success factors through a benchmarking
of the three models. First, we give a theoretical
overview of the different needs of start-ups. Then,
we describe and compare the three models. Next,
we discuss each model and indicate their success
factors. Finally, we draw conclusions and formu-
late policy recommendations.
2. Literature review
Kazanjian (1988) adapts a lifecycle model to
study the growth pattern of technology-base
firms. He shows that each stage of the presented
four-stage model is linked with different domi-
nant problems. As the firm grows, it is confronted
with new problems that change the demands on
the organization. Elaborating on Kazanjian
(1988), Lindström and Olofsson (2001) distin-
guish between the ‘early stage’, the ‘market entry
stage’ and the ‘business growth stage’. While
the first three stages are similar to those in
Kazanjian’s model, Lindström and Ollofsson
(2001) do not consider the last stage (the stability
stage). We follow this approach given the focus of
this study. In the first phase, which Kazanjian
calls the initiation phase, entrepreneurs try to
formulate an idea in a clear way and test the
assumptions behind their idea while developing a
business case. Further, the entrepreneur has to
acquire the necessary resources to start the busi-
ness and develop the product or service. In this
phase, most entrepreneurs lack contacts with the
final customers and commercial expertise. The
second phase is called the development phase. In
this phase, entrepreneurs try to get a foothold in
the market place while further developing their
product. The main barriers for innovative start-
ups in this phase are recruiting effective man-
agers, financing the prototype and building a
client base (Koschatzky, 1997). Finally, we dis-
tinguish the growth phase. Once the product is
technically feasible, start-ups tend to grow and
gain legitimacy on an international market. These
phases are parallel to what the financial commu-
nity calls the pre-seed, the seed and the follow-up
phase (Roberts, 1991).
During each stage in the early growth process,
start-ups have different needs (Kazanjian, 1988).
The study of Heydebreck et al. (2000) maps the
needs of new technology-based firms for innova-
tion support services. Heydebreck et al. (2000)
identified four services that innovative start-ups
often need: technology-related, market-related,
finance-related and soft services. The first two
needs relate to the process, which the start-up has
to follow in order to bring its product to the
market. Usually, innovative start-ups have diffi-
culties to exploit the full potential of their tech-
nology and need ‘coaching’ to explore the
possibilities of appropriating their own technol-
ogy. Specific aspects of patent legislation, con-
tracting and licensing agreements are part of this
coaching. Further, technology entrepreneurs of-
ten lack market knowledge and business develop-
ment skills. Therefore, support in how to perform
market studies, set up a strategic sales plan and
approach lead users might be a necessity to
launch the company successfully. Consequently,
Bart Clarysse and Johan Bruneel
140 RD Management 37, 2, 2007 r 2007 The Authors
Journal compilation r 2007 Blackwell Publishing Ltd

3. innovative start-ups still rely heavily on ‘coach-
ing’ to transform their technological potential and
expertise into economic success. Even more, the
market-related needs of these companies are per-
ceived to be the greatest. Innovative start-ups
need large amounts of capital to develop both
the technology and the market targeted. Because
of the high risks associated with these type of
companies, innovative start-ups face huge bar-
riers to attract financial means sufficiently and
therefore have a high need for finance-related
support services.
In addition, Heydebreck et al. (2000) found an
additional needs bundle: soft services. This bun-
dle of services refers to ‘network services’. Many
innovative start-ups encounter more general type
of problems, such as the development of their
strategy or the establishment of efficient partner-
ships. To overcome these problems, innovative
start-ups need access to networks of excellence
where they can utilize external expertise, experi-
ence and knowledge. In their paper, Heydebreck
et al. (2000) also point to the importance of
increasing network transparency and coordina-
tion. They state that establishing and maintaining
inter-organisational and other types of profes-
sional relationships are time consuming. Conse-
quently, start-up companies cannot continuously
expand their external resource base. Therefore,
the coordination of networks is not the task of
innovative start-ups but of other organisations.
Summarising, Heydebreck et al. (2000) point to
three ‘need dimensions’: financing, networking
and coaching. These three needs are well known
and consequently described in the literature. The
first identified need in the literature is ‘financial’.
The second need concerns the ‘networking’ di-
mension. Last, innovative start-ups are also in
need of ‘professional’ or ‘knowledge intensive’
service. We now further elaborate on each of
these different needs in the next paragraphs.
2.1. Financing
The difficulties small firms face to find and attract
financial means has been widely studied in the
literature. A common used approach is the peck-
ing order theory introduced by Donaldson (1961).
The pecking order approach states that firms
prefer internal finance. If external financing is
required, firms start with debt and only use
external equity as a last resort (Myers, 1984).
Most entrepreneurs do not have sufficient finan-
cial means to start-up a business. The financial
needs of new technology-based firms are even
higher than in other businesses due to necessary
investments for technological developments.
However, the risk profile of high-tech start-ups
impedes this type of companies to obtain bank
loans. Following the pecking order theory, the
next and final source of capital is the venture
capital community. Although venture capitalists
seem to be the perfect match for new technology-
based firms, few succeed in attracting venture
capital. This is due to two tendencies of venture
capital firms regarding their investment strategy.
First, venture capital firms only seek larger trans-
actions and investments. Investing small amounts
reflects on their returns because of proportio-
nately higher costs of due diligence, management,
and monitoring. Secondly, the investment pat-
terns among venture capitalists in Europe show
that most of them invest outside high-tech sectors
(Murray, 1994). Apparently, venture capitalists
are reluctant to invest in high risk, new technol-
ogy-based firms. As a conclusion, many poten-
tially viable projects fail to get funding because
they have insufficient knowledge of the venture
capital industry or the amounts sought are too
small for consideration by most venture capital
funds.
Following Roberts (1991), we classify the
financial needs of start-ups in three successive
phases. First, there is the pre-seed phase. In this
phase, the start-up needs to test and evaluate the
assumptions made in the business plan. For this
purpose, the entrepreneur often needs a limited
amount of money (10,000–25,000 Euros). The
entrepreneur uses this amount to attend foreign
trade shows, develop a prototype or collect mar-
ket information. However, the uncertainty in this
phase is huge. Scholars found that one out of ten
ideas make it to the market place. This implies
that two-thirds of the ideas fail to go to the next
phase. Because of the small amounts of money, it
is impossible for the private market to respond to
the financing of start-ups in the pre-seed phase. In
this phase, the most common sources of financial
means are personal savings, loans from friends
and families, and support from government agen-
cies (Van Auken and Carter, 1989). The second
phase is the seed phase. The establishment of the
company characterizes this phase. This does not
mean that the company already has its products
on the market (for example in biotechnology,
start-ups are founded before they have a product
on the market as they face long development
cycles). The difference with the previous phase is
that the assumptions in the business plan have
Nurturing and growing innovative start-ups
r 2007 The Authors
Journal compilation r 2007 Blackwell Publishing Ltd
RD Management 37, 2, 2007 141

4. been tested and the company is formally founded,
whether it is a research and development (RD)
boutique or not. Nonetheless, the risks in the seed
phase are still considerable. To survive the second
phase, a high tech, growth-oriented company
easily needs 500,000 to 1 million (M) Euros.
Other, less ambitious projects need amounts up
to 100,000 Euros. In the latter case, usually the
project involves a local albeit profitable business
model, but the founders lack the seed money to
start. The third phase is the early-stage follow-up
financing. In this phase, the business model is
tested and the company expands its activities and/
or the company internationalises. Given the sig-
nificant amounts of capital required in the seed
and early-stage follow-up phase, the sources of
financing differs from the first phase. Typically,
institutional venture capital (Bruno and Tyebjee,
1985) and business angels (Madill et al., 2005)
provide the necessary funds to support and fuel
the company’s growth.
2.2. Networking
Collinson and Gregson (2003) examine how local
entrepreneurship promotion facilitates the inter-
action between young entrepreneurs with net-
works of their experienced counterparts and
managers, financiers and venture capitalists, tech-
nical consultants, Intellectual property rights
(IPR) specialists, and other specialists. They
found that young entrepreneurs assimilate and
integrate external knowledge, resulting in acceler-
ated learning. They conclude that access to ex-
ternal sources of knowledge through networks
subsidizes the transaction costs that make the
learning curve much steeper. Hansen et al.
(2000) point to the networking activities as the
most important value added of initiatives. How-
ever, they stress that not every network provides
the same level of value added. An efficient net-
work has important characteristics. First, the
network has to be fostered and managed structu-
rally. By institutionalising, the network no longer
depends on the personal connections of a few
people. Secondly, the entrepreneurs have prefer-
ential access to busy people.
The network of firms is critical for the acquisi-
tion of resources necessary for firm survival and
growth (Gulati, 1998). As the firm progresses, it
needs new and additional resources. Hite and
Hesterly (2001) argue that the evolving resource
needs necessitate a shift in type of network. In the
first stages, a firm heavily relies on personal
relationships of founders/managers (Ostgaard
and Birley, 1994). From the moment the firm
grows, personal networks are less likely to possess
the breadth of resources a firm needs to sustain its
growth. Therefore, firms need to access institutio-
nalized networks that provide greater resource
availability. Research by Fischer and Reuber
(2003) confirms this finding. Fischer and Reuber
(2003) confronted the views of founders, govern-
ment policy makers and private sector resource
providers on support for rapid-growth firms.
They concluded that governments could play a
vital role in the establishment and management of
knowledge networks.
Content wise, there are four kinds of support
networks. The first kind is the financial network
(Roberts, 1991). Start-ups need access to financial
resources to grow. The kind of financial networks
change along the life cycle of the start-up. The
financial network in the first phase might be
limited to the personal network of the founder
(Roberts, 1991) and some public sources
(Utterback et al., 1988). Once the company enters
into the development phase, access to more in-
stitutional equity financers such as venture capi-
talists and business angels is needed (Steier and
Greenwood, 2000). Moreover, personal finance,
3F money and bank loans are often insufficient to
exploit the growth potential of the new technol-
ogy (Westhead and Storey, 1997). In addition to
the local networking for seed capital, there is also
a need for international networking. In a perfect
venture capital market, every local player would
syndicate with international partners. As a result,
the international networking would go automati-
cally. However, we see that there is not a perfect
market process. The local and international risk
capital markets often lack any form of contact or
these contacts are very weak, at least. This means
that the network access offered might change as
well if the company enters the growth phase.
In addition to access to finance, start-ups are
also in need of access to human resources (Hansen
et al., 2000). Start-ups do not have a reputation
such as large companies, nor do they have the
financial means to identify potential employees.
Nevertheless, recruiting researchers, business de-
velopers, managers, and market-oriented people
are an often-mentioned problem in start-ups
(Murray, 1996). The founders of a start-up can
be specialists in a certain technology with a broad
research network, but do not have necessarily a
network in the industry to attract complementary
business experience. Yet, start-ups that embody
both technical and business experience are more
Bart Clarysse and Johan Bruneel
142 RD Management 37, 2, 2007 r 2007 The Authors
Journal compilation r 2007 Blackwell Publishing Ltd

5. successful in commercialising new products and
services (Lamont, 1972). Therefore, a well-orga-
nised network is the most suitable solution to
access human resources.
As many innovative start-ups develop products
and/or services based upon the newest technolo-
gies or even develop disruptive technologies them-
selves, access to technological resources is often
crucial. Spin-offs from universities usually have
well-developed research networks to start from.
Lofsten and Lindelof (2005) found that over 70%
of spin-offs had RD cooperation with univer-
sities. Similarly, spin-offs from the University of
Cambridge maintain strong relations with the
University (Keeble et al., 1999), which has a
positive influence on the level of innovation and
the development of new products. These networks
might lead to buy-in of technology to complement
the technology platform. Independent entrepre-
neurs might have a more difficult time to access
novel technologies.
The fourth type of networking is organisational
networking. These networks help the start-ups to
identify and qualify specialised experts in
certain fields such as legal advice, patenting,
negotiation . . . In order to access these resources
and services, the entrepreneur (and start-up to a
larger extent) has to build a network of outsiders
that are identified as critical resource suppliers
(Larson, 1992). These broad domains are usually
populated with many experts, who differ substan-
tially in terms of expertise, knowledge and pro-
fessionalism. For start-ups that have no
established relations, it might be very difficult
and time consuming to identify the best experts
for each topic. Therefore, Manning et al. (1989)
argue that economic policies should aim at sup-
porting linkages (i.e. networks) between entrepre-
neurs and experts, consultants, and advisors.
2.3. Coaching
An assumption of networking is that relevant
knowledge and expertise is available and can be
hired through the market. This is not always the
case because of market failures. Entrepreneurs are
often in need of specific knowledge to develop
their technology into a market ready product of
which the underlying assumptions are tested.
Especially in the pre-start-up phase, coaching is
an absolute necessity. Coaching can be active or
passive. Active coaching implies a basic support
towards the start-up in the field of financial,
human, technological and organisational re-
sources. Several studies show that venture capi-
talists play an important role in connecting their
portfolio companies with external resource pro-
viders. For example, MacMillan et al. (1989)
show that venture capitalists are involved in
obtaining additional financing and provide assis-
tance in finding and selecting key management
personnel. Passive coaching represents the sound-
ing board function each start-up needs. The goal
of passive coaching is to support and advice the
start-up in strategic planning rather than assist
the company in daily organisational decision
making (Stiles, 2001). The involvement in strategy
development and monitoring of the subsequent
strategy implement is typically the role of the
start-up’s board of directors (Zahra and Pearce,
1989). The problem for start-ups is that they do
not have the financial means to hire professional
consultants to fulfil these roles. Conversely, the
latter have no experience in coaching start-ups,
which make their advice often irrelevant.
3. Methodology
What can we learn from the experiences with
public incubation funds to bridge the financing
gap between the first steps of idea generation and
the take-off of innovative growth enterprises in
the VC market?
The stylised models to describe the types of
‘need dimensions’ of high-tech start-ups for sup-
port services will be used to make a benchmarking
of the three models described in this paper is a
result of an in-depth case study. As suggested by
Miles and Huberman (1994), a qualitative re-
search design is necessary when there is a clear
need for deep understanding and local contextua-
lisation of the topic under study. Case studies are
particularly appropriate for our study, of given
the need for detailed, contextual description of
the three models. Given our attempt to bench-
mark different regional models, the appropriate
research methodology is the comparative research
methodology (Yin, 1984; Eisenhardt, 1989). We
compiled the data through a combination of site
visits and structured interviews with different
stakeholders. Additional data were collected via
secondary data sources such as websites, organi-
sation brochures and annual reports, newsletters
and press releases.
Comprehensive studies have been made of
Sitra’s PreSeed Service in Finland and Chalmers
Innovation in Sweden. For the study of
the Finnish model, data were collected during
Nurturing and growing innovative start-ups
r 2007 The Authors
Journal compilation r 2007 Blackwell Publishing Ltd
RD Management 37, 2, 2007 143

6. interviews with each member of Sitra’s PreSeed
Service team. To assess the perception of the
other parties participating in the Sitra model,
representatives of Tekes, business angels and
managers from venture capital firms were in-
cluded in the empirical study. The Chalmers study
in Sweden also involved structured interviews
with all team members of the organisation. Chal-
mers Innovation has a strong link with the
Chalmers University of Technology and the Cen-
tre for Intellectual Property Studies. To unravel
these relationships, we conducted interviews with
scholars from Chalmers School of Entrepreneur-
ship and Chalmers Centre for Intellectual Prop-
erty studies. This study has also used the insights
from previous academic papers on Chalmers
University that address the role and infrastructure
of the University for supporting entrepreneurship
(e.g. Jacob et al., 2003). The study of the French
model is the least comprehensive of the three. The
data collection consists of site visits and inter-
views with directors of Anvar and BDPME. In
addition, we consulted annual reports of the
respective French organisations to supplement
the data collection. The French case study also
builds on the insights from papers describing
different policy initiatives to support start-ups
and SMEs in general (e.g. Cieply, 2001).
4. Benchmarking between Sweden
(‘Chalmers’ model), France (ANVAR –
BDPME model), and Finland (‘Sitra’
model)
4.1. Financing
Table 1 gives an overview and comparison of the
financial products used in the different models. In
the pre-seed phase, we observe that both Sweden
and Finland provide a subsidy between 10,000
and 25,000 Euros to test and evaluate the assump-
tions in the business plan. In Sweden, the subsidy
is financed by a programme of the Regional
Development Agencies (RDA). Next to the
10,000 Euro subsidy of the RDA, the Chalmers
model has two other organisations that support
business plan validation. Venture Cup and
Chalmers Innovation itself provide 24,000 and
30,000 Euros, respectively. Both initiatives have
no commercial purpose. The public relations
budget of local venture capital community fi-
nances Venture Cup while the support from
Chalmers Innovations is financed by a donation
of a business angel. In Finland, the support for
Table
1.
Overview
of
the
financial
products
offered
by
the
three
models
in
different
stages
of
the
company’s
life
cycle
Stage
in
life
cycle
Country
Sweden
France
Finland
Pre-seed
(Initiation
stage)
Regional
development
agency:
subsidy
h10.000
(students
academics)
Venture
Cup:
h24.000
Chalmers
Innovation:
h30.000
PreSeed
Service:
h20.000
Tekes:
subsidy
h20.000
Seed
(Development
stage)
Vinnova:
soft
loan
(max
h200.000)
Local
seed
funds:
h80.000
BAN
Connect
Anvar:
temporary
capital
(10
years)
up
to
50%
of
the
capital
CDC,
PME-innovation:
private
equity
participation
up
to
40%
of
the
capital
BAN:
min
h15.000
PreSeed
Service:
convertible
loan
(max
h150.000)
DIILI:
max
h20.000
Local
seed
funds
Follow-up
(Growth
stage)
Chalmers
Invest:
h200.000
CDC:
fund-in-fund
investments
Sitra
Venture
Capital
(min
h200.000)
Bart Clarysse and Johan Bruneel
144 RD Management 37, 2, 2007 r 2007 The Authors
Journal compilation r 2007 Blackwell Publishing Ltd

7. business plan validation is a co-operation between
Tekes and Sitra Pre-seed Service. The financial
contribution of Tekes is a pure subsidy for the
start-up company. The contribution of Sitra is a
subordinated loan, repayable at time of commer-
cialisation (0% interest rate) or convertible in
shares. In France, only Anvar is active in this
phase and offers support for technological devel-
opment of the prototype with a maximum of 50%
of the total costs. Private partners must provide
the other 50%, which is difficult to attract for
such high-risk projects.
In the seed phase, soft and/or convertible loans
replace the subsidies and the actors change. The
actors in this phase are business angels and local
seed capital funds. In Sweden and France, the
subsidy agencies Vinnova and Anvar are active
agencies with mixed success. Vinnova grants soft
loans to start-ups (the return is not monitored;
the Swedish agency expect that a quarter will be
repaid). In France, Anvar has two systems. On
the one hand, Anvar grants a loan up to 50% of
the capital. The loan can only be used for tech-
nological innovations and only needs to be repaid
in case of commercial success, which happens in
one out of four start-ups. On the other hand,
Anvar takes a participation in a company, limited
to 50% of the capital. The investment is under the
form of a convertible loan of which the conver-
sion rate is determined at the time of investment.
In this phase, Anvar acts as a venture capital
provider. The advantage of the participation is
that the use of the money is not restricted to
technological developments. The disadvantage of
the participation is that a private partner must
provide the other 50% and that the conversion
rate must be negotiated with that partner. This is
where the shoe pinches. Business angels and local
venture capital companies do not see the subsidy
agency as a financial investor. Therefore, they are
reluctant to deal with Anvar as a negotiation
partner. As a result, only 10 companies a year
receive this form of support. In Finland, the seed
capital phase is solely the domain of Sitra, the
business angels network, and local seed capital
funds. Tekes is not explicitly involved in this
phase.
Further, both Chalmers in Sweden and Sitra in
Finland have their own follow-up fund to bridge
the gap between small, local financiers and large,
international players such as 3i, Venture Capital
Partners . . . In France, the situation is very
different. There is no financing available to bridge
the gap. The CDC plays a role by doing fund in
fund investments.
4.2. Networking
When looking at the financial networks, we ob-
serve that each country has its own business angel
network, which the government supports. In
Sweden and Finland, Chalmers Innovation and
Sitra perform the coordination of these networks,
respectively. In France, Anvar cooperates with
these business angel networks to find the addi-
tional 50% financing for the start-ups. The qual-
ity labels Anvar gives to start-up companies that
are looking for venture capital facilitate the
networking with local, financial partners. Once a
company receives a quality label by Anvar, the
start-up company addresses a local venture capi-
tal company in which CDC has invested (through
a fund in fund investment). This fund in fund
investments amounts up to 70% of the total
capital of the particular fund. In practice, the
relations between Anvar and the local financing
community has decreased as the introduction of
the convertible loans, whereby Anvar started to
act as an investor. By doing so, the local investors
have the feeling that Anvar transforms the sub-
sidy into a convertible loan for the start-ups with
a high potential. As a result, the valuation of the
company becomes too high for private investors.
This new product of Anvar resulted in an
exponential decline in the number of co-
operations between Anvar and the local financing
community.
Networks to attract human resources are often
more important for start-ups than financial net-
works. The teams of many start-ups are often
incomplete and the founders often lack sector
experience in the industry they target. Sitra has
established a very interesting mechanism to over-
come this problem: DIILI. DIILI is a network of
product managers that look for a new challenge.
They have explicitly expressed their desire to join
a start-up as co-founder to DIILI. As a sign of
their commitment, they often act as a co-investor,
investing limited amounts of money in the start-
up. In contrast to business angels, these people
will spend 100% of their time in the start-up. In
Sweden, Chalmers has built a similar network.
The potential business developers are MBA stu-
dents of Chalmers School of Entrepreneurship.
As a MBA project, the students can develop a
business plan suggested by Chalmers Innovation.
Again, these people work on the project full time
and have the possibility to co-found the company.
Further, Sitra (the organization with the best
network model) works together with Tekes to find
technology partners. In addition, Tekes supports
Nurturing and growing innovative start-ups
r 2007 The Authors
Journal compilation r 2007 Blackwell Publishing Ltd
RD Management 37, 2, 2007 145

8. the start-ups to manage and control their intellec-
tual property. Chalmers Innovation, which is
more a traditional incubator, relies on a network
of traditional consultants and has its own Centre
for Intellectual Property Studies. Table 2 provides
an overview of the financial, human resources,
technology and organisational networks partici-
pating in the Swedish, French and Finnish model.
4.3. Coaching
In the previous section, we mentioned the differ-
ence between active and passive coaching. Active
coaching entails the guidance of the trajectory and
is most important in the start-up phase. In this
phase, the entrepreneur needs to test the assump-
tions in the business plan and specify suitable
business models. In most cases, the
entrepreneur has no experience to perform these
activities. In addition, picking out the most sui-
table business model is difficult in case the
entrepreneur has no knowledge on other similar
companies. This makes it almost impossible to
classify a certain piece of information as positive
or negative. As illustrated in Table 3, the
Chalmers model uses active coaching intensively
via members of the Chalmers School of Entrepre-
neurships, but is absent in the Sitra and Anvar
model. We consider this as a deficiency of the Sitra
model. The market of services to entrepreneurs is
fragmentised and the profit margins are very low.
As a result, classic consultants cannot fill up this
gap. The founders lack the means, and also the
pre-sales trajectory is often too long. As a result,
the upfront investment becomes too large. At the
same time, we see that consultants have little or no
experience working with start-ups, whereby their
potentially value added can remain quite low.
Next to active coaching, the passive coaching as
sounding board is also very important. In the pre-
seed and seed phase, this is again an uneconomic
activity for the private market. This kind of coach-
ing implies that there are persons who are able to
act as an advisor without requiring any resources.
In the follow-up phase, experts are formally re-
cruited to the company and reinforce the board of
directors. In the early phases, the passive coaches
are business angels (Sitra), possible in combination
with active coaches (Chalmers).
5. Conclusions
Most experts referred to the Swedish and the
Finnish models as being success stories in Europe,
albeit both show their own individual shortcom-
ings. In Sweden, the multiple realized for the
government varies between 3.4 and 4.5. This
means that for each Euro invested in both the
incubator and the start-up companies, the
government receives 3.4–4.5 Euro. The variance
is dependent upon whether certain social
contributions are incorporated in the return or
Table 2. Different type of network partners participating in the three models
Type of network Country
Sweden France Finland
Financial Technology Bridge Foundation
Venture Cup
Nutek
Local seed funds
BAN Connect
Chalmers Invest
Local Venture
Capitalists
BAN
Local seed funds
Sitra Venture Capital
Human resources Chalmers School of
Entrepreneurship
DIILI: business developers
Technology Chalmers University
of Technology
Pôle de competitivité
Les incubateurs publiques
Regional technology office
Organisational Centre for Intellectual
Property Studies
KPMG, PWC, and
Ernst Young
Consultants Sitra Venture Capital
Tekes
Table 3. Type of coaching offered in Sweden, France,
and Finland
Type of
coaching
Country
Sweden France Finland
Active Yes No No
Passive Members of
Chalmers School
of Entrepreneurship
Several
actors
Business
Angels
Bart Clarysse and Johan Bruneel
146 RD Management 37, 2, 2007 r 2007 The Authors
Journal compilation r 2007 Blackwell Publishing Ltd

9. not. An explanation for this high return is the fact
that the highest costs are labour costs. Taxation on
labour is very high, which results in a great return.
Although the PreSeed Service of Sitra is too
young to evaluate, there are some indications of
success. After 2.5 years, more than 400 companies
applied to have access to the model and over 100
companies were founded through the PreSeed
Service. In spite of long-term results, the pro-
spects seem promising.
Contrary to the two previous models, the
success of the French model is strongly disputa-
ble. The core actors foresee drastic changes in the
next year due to a lack of success of the current
model. Especially the co-operation between
Anvar and BDPME is questioned. In addition,
the collaboration between CDC and both pre-
vious organizations is difficult. In France, there is
no coherent approach and vision on how to
support start-ups. Each actor has its own pro-
ducts and a clever entrepreneur can profit from
this by establishing a start-up without one Euro
of private money. However, the products are so
scattered that no real results of the different
initiatives exists. The only evaluation is macro-
economic in nature and concludes that there are
little growth companies in France because of
diverse, scattered policy measures.
6. Policy recommendations
In this paragraph, we give an overview of the lessons
learned from the Swedish and Finnish model.
6.1. A coherent model with a clear vision
turns out to be a common
characteristic of successful models
In Sweden and Finland, both Chalmers Innova-
tion and Sitra PreSeed Service are coherent enti-
ties with a strong vision on what is necessary to
meet the specific needs of start-ups. On the con-
trary, the actors in France are fragmented and,
consequently, nobody has a clear view on the
results. Differences in opinions and troubles be-
tween the different actors prevent them to address
the problems and needs of start-ups. Although
Chalmers and Sitra also have some problems (the
latter has a lack of active coaching, while the
former has problems to recruit business develo-
pers), these problems are largely compensated by
the vision and strategy of the models. In contrast
to the French model, Chalmers and Sitra choose
to have coordinating organisations with own
means and people to coach start-ups.
6.2. A structural budget is needed to
install a successful model
Both Chalmers and Sitra’s PreSeed Service have
received enough financial means to develop their
respective models. Chalmers innovation received
5 MEuro from a business angel and Vinnova
covers the management. Sitra received 235
MEuro from the Finnish government. The cumu-
lated interests cover the working expenses. It took
three years to develop and install the models.
6.3. Financing is organised in slices or
stages with formal GO/NON-GO
moments and entails subsidies in the
pre-seed phase
Both in Sweden and Finland, equity investments
are build up gradually. The first money injection
in a start-up is always under the form of a
subsidy, but with stringent conditions. In Flan-
ders, this type of money only exists at universities
(through research departments), spin-offs from
VIB and IMEC (through incubation department,
and a select number of corporate spin-offs
(Umicore, Bekaert . . . ). In the cases studied,
the local agency (i.e. Tekes or Vinnova) plays a
prominent role in this phase.
6.4. Institutionalised networking is a key
element (especially to attract human
resources)
One of the core problems of start-ups is to build a
complementary and heterogeneous team. It
proves to be difficult to find people with relevant
industry-specific knowledge. Even when they find
those people, it is often difficult to persuade them
to join the start-up. The success of Chalmers and
Sitra relies largely on the presence of a network to
attract human resources. In Flanders, a network
to attract human resources does not exist.
6.5. Active coaching in pre-seed or
initiation phase is a must, passive
coaching is not a substitute
In the start phase, there is a need for trajectory
coaching to choose the best business model, to
test and evaluate the assumptions in the business
Nurturing and growing innovative start-ups
r 2007 The Authors
Journal compilation r 2007 Blackwell Publishing Ltd
RD Management 37, 2, 2007 147

10. plan, to evaluate the technology and to determine
the freedom to operate. This active coaching is –
next to human resource matching – the critical
success factor of Chalmers Innovation. Unfortu-
nately, this is not a profitable activity. Therefore,
Vinnova finances the coaches. They spend about
1 day a week per company (which is equivalent to
the time spent by early stage investors in a further
phase). In Flanders, this type of coaching only
exists in the technology transfer offices at the
universities.
6.6. Soft loans are only successful if they
are not convertible to equity
In the pre-seed and seed phase, people sometimes
choose for the mechanism of granting loans, at or
far below market tariffs. This system works as
long as there are no commercial expectations
attached to the loans (see Anvar) and no conver-
sion to equity are determined at time of conclud-
ing the loan. In the latter, the loan provider
becomes a capital provider. Often, the agencies
do not have the knowledge or experience for this
and are in a difficult position to negotiate with the
large, international venture capital companies. To
compensate this awkward position, agencies like
Anvar abuse their monopolistic position by limit-
ing the investment possibilities of venture capital
companies by granting quality labels to innova-
tive start-ups. This situation is not beneficial for
the start-ups seeking for venture capital.
6.7. Own financing between seed and
follow-up phase is a must
Both Chalmers and Sitra have their own fund that
bridge the phase between seed money and profes-
sional venture capital. This seems to be a must,
especially today with financial markets in crisis.
On the other hand, the pressure to attract smaller
funds becomes too high.
References
Autio, E. and Lumme, A. (1998) Does the innovator role
affect the perceived potential for growth? Analysis of
four types of new technology-based firms. Technology
Analysis Strategic Management, 10, 1, 41–55.
Bruno, A.V. and Tyebjee, T.T. (1985) The entre-
preneur’s search for capital. Journal of Business
Venturing, 1, 1, 61–74.
Churchill, N. and Lewis, V. (1983) The five stages of
small business growth. Harvard Business Review, 61,
3, 30–40.
Cieply, S. (2001) Bridging capital gaps to promote
innovation in France. Industry and Innovation, 8, 2,
159–178.
Collinson, S. and Gregson, G. (2003) Knowledge net-
works for new technology–based firms: an interna-
tional comparison of local entrepreneurship
promotion. RD Management, 33, 2, 189–209.
Colombo, M.G. and Delmastro, M. (2001) Technology
use and plant closure. Research Policy, 30, 1, 21–34.
Dohse, D. (2000) Technology policy and the regions –
the case of the BioRegio contest. Research Policy, 29,
9, 1111–1133.
Donaldson, G. (1961) Corporate Debt Capacity:
A Study of Corporate Debt Policy and the Determi-
nants of Corporate Debt Capacity. Boston, MA:
Harvard Business School, Harvard University.
Eisenhardt, K. (1989) Building theories from case study
research. Academy of Management Review, 14, 4,
532–550.
Fischer, E. and Reuber, A.R (2003) Support for rapid-
growth firms: a comparison of the views of founders,
government policymakers, and private sector
resource providers. Journal of Small Business
Management, 41, 4, 346–365.
Gulati, R. (1998) Alliances and networks. Strategic
Management Journal, 19, 4, 293–317.
Hansen, M.T., Chesbrough, H.W. and Nohria, N.
(2000) Networked incubators. Harvard Business
Review, 78, 5, 74–84.
Heirman, A. and Clarysse, B. (2004) The Initial Re-
sources and Market Strategy to Create High Growth
Firms, Ghent University, Working Paper Series.
Heydebreck, P., Klofsten, M. and Maier, J. (2000)
Innovation support for new technology-based firms:
the Swedish teknopol approach. RD Management,
30, 1, 89–100.
Hite, J.M. and Hesterly, W.S. (2001) The evolution of
firm networks: from emergence to early growth of the
firm. Strategic Management Journal, 22, 3, 275–286.
Jacob, M., Lundqvist, M. and Hellsmark, H. (2003)
Entrepreneurial transformations in the Swedish uni-
versity system: the case of Chalmers university of
technology. Research Policy, 32, 9, 1555–1568.
Kazanjian, R.K. (1988) Relation of dominant problems
to stages of growth in technology-based new ven-
tures. Academy of Management Journal, 31, 2,
257–279.
Keeble, D., Lawson, C., Moore, B. and Wilkinson, F.
(1999) Collective learning processes, networking and
‘institutional thickness’ in the Cambridge region.
Regional Studies, 33, 4, 319–332.
Koschatzky, K. (1997) Introduction: technology-based
firms in the innovation process: object and research.
In Koschatzky, K. (ed.), Technology-Based Firms in
the Innovation Process. Heidelberg: Physica-Verlag,
pp. 1–10.
Bart Clarysse and Johan Bruneel
148 RD Management 37, 2, 2007 r 2007 The Authors
Journal compilation r 2007 Blackwell Publishing Ltd

11. Lamont, L.M. (1972) What entrepreneurs learn from
experience. Journal of Small Business Management,
10, 3, 36–41.
Larson, A. (1992) Network dyads in entrepreneurial
settings: a study of the governance of exchange rela-
tionships. Administrative Science Quarterly, 37, 1,
76–104.
Lindström, G. and Olofsson, C. (2001) Early stage
financing of NTBFs: an analysis of contributions
from support actors. Venture Capital: An International
Journal of Entrepreneurial Finance, 3, 2, 151–168.
Lofsten, H. and Lindelof, P. (2005) RD networks and
product innovation patterns – academic and non-
academic new technology-based firms on Science
Parks. Technovation, 25, 9, 1025–1037.
MacMillan, I.C., Kulow, D.M. and Khoylian, R.
(1989) Venture capitalists’ involvement in their in-
vestments. Exent and performance. Journal of
Business Venturing, 4, 1, 27–47.
Madill, J.J., Haines, G.H. and Riding, A.L. (2005) The
role of angels in technology SMEs: a link to venture
capital. Venture Capital: An International Journal of
Entrepreneurial Finance, 7, 2, 107–129.
Manning, K., Birley, S. and Norburn, D. (1989) Devel-
oping a new venture strategy. Entrepreneurship
Theory and Practice, 14, 4, 68–76.
Miles, M.B. and Huberman, M.A. (1994) Qualitative
Data Analysis. An Expanded Sourcebook (2nd ed).
Beverly Hills, CA: Sage.
Murray, G. (1994) The European union’s support
for new technology-based firms: an assessment of
the first three years of the European seed capital
fund scheme. European Planning Studies, 2, 4,
435–462.
Murray, G. (1996) A synthesis of Six exploratory,
European case studies of successfully exited, venture
capital-financed, new technology-based firms.
Entrepreneurship Theory and Practice, 20, 4, 41–60.
Myers, S.C. (1984) The capital structure puzzle. Journal
of Finance, 39, 3, 575–592.
Ostgaard, T.A. and Birley, S. (1994) Personal networks
and firm competitive strategy: a strategic or coinciden-
tal match? Journal of Business Venturing, 9, 4, 281–305.
Pollock, J. and Scheer, W. (2002) Regional seed invest-
ing: merchantbanc. Venture Capital: An International
Journal of Entrepreneurial Finance, 4, 4, 343–347.
Roberts, E.B. (1991) Entrepreneurs in High Technology:
Lessons from MIT and Beyond. Oxford: Oxford
University Press.
Roper, S. and Mawson, J. (1999) Israel’s technology
incubators: repeatable success or costly failure?
Regional Studies, 3, 2, 175–181.
Sherman, H.D. (1999) Assessing the intervention effec-
tiveness of business incubation programs on new
business start-ups. Journal of Developmental
Entrepreneurship, 4, 2, 117–133.
Steier, L. and Greenwood, R. (2000) Entrepreneurship
and the evolution of angel financial networks.
Organizations Studies, 21, 1, 163–192.
Stiles, P. (2001) The impact of board on strategy: an
empirical examination. Journal of Management
Studies, 38, 5, 627–651.
Storey, D.J. (1994) Understanding the Small Business
Sector. London: Routledge.
Storey, D.J. and Tether, B.S. (1996) New Technology-
Based Firms in Europe EIMS Publication No. 31.
Luxembourg: Directorate General XIII of the
European Commission.
Utterback, J.M., Meyer, M., Roberts, E. and Reitber-
ger, G. (1988) Technology and industrial innovation
in Sweden: a study of new technology-based firms
founded between 1965 and 1980. Research Policy, 17,
1, 15–26.
Van Auken, H.E. and Carter, R. (1989) Acquisition of
capital by small business. Journal of Small Business
Management, 27, 2, 1–9.
Westhead, P. and Storey, D.J. (1997) Financial con-
straints on the growth of high technology small
firms in the United Kingdom. Applied Financial
Economics, 7, 2, 197–201.
Yin, R. (1984) Case Study Research: Design and
Methods. Beverly Hills, CA: Sage.
Zahra, S.A. and Pearce, J.A. (1989) Board of directors
and corporate financial performance: a review and
integrative model. Journal of Management, 15, 2,
291–335.
Nurturing and growing innovative start-ups
r 2007 The Authors
Journal compilation r 2007 Blackwell Publishing Ltd
RD Management 37, 2, 2007 149