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Markets for allocating risk capital to early stage technology
ventures are inefficient for two main reasons:
- Private
investors in early stage technology development do not
fully capture the benefits of such technologies, creating
a disincentive to make this investment.
- Serious
inadequacies exist in the information available
to both entrepreneurs and investors.
- Early
stage technology development involves both high
quantifiable risks and large uncertainties.
- When
the uncertainties are mainly technical, potential
investors are poorly equipped to quantify them.
- When
the new technology is a breakthrough technology,
creating new products and new markets, market uncertainties
are also difficult to quantify.
- With
technologies and markets becoming increasingly complex,
the “due
diligence” required
by investors not only increases, but is also more difficult
to perform.
Technology entrepreneurs
face a shortage of funding for early stage technologies.
The innovators alone cannot capture the full benefits
of early stage technologies. This funding gap is
a disincentive for the private sector to go it alone,
providing motivation for government involvement. |
ATP helps diminish impacts of imperfect information between
investors and innovators
- ATP’s competitive review process is a form of due
diligence that provides information on technology projects
worthy of investors’ attention. An ATP award signals
to investors that a project developing early stage technologies
has the potential to lead to new products and services,
delivering significant benefits to the innovators.
- ATP plays an important role in filling the efficiency gaps
in the capital market for early stage technology development.
In addition, the ATP funds projects that deliver significant
benefits to society as a whole.
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1 These
findings are from Branscomb and Auerswald’s 2002 report, Between
Invention and Innovation: An Analysis of the Funding for Early
Stage Technology Development.
Factsheet 1.C4 (October 2002) |
