FUNDING INNOVATIVE SMES OPERATING IN TRADITIONAL SECTORS

The growing interest in SMEs stems from the fact that they are perceived as a main engine of economic growth and job creation. Still, these companies face obstacles in the form of inaccessibility to financing, especially those companies that are based on knowledge and innovation and whose primary assets are intangible in nature. The present study is a continuation of the research of Harel and Kaufmann, who investigated the funding difficulties of Innovative SMEs in Traditional Sectors (ISTS) from the supply side, focusing on existing funding sources in the market. The current research aim is to assess the earlier study's ISTS funding market-failure argument, from the demand side as well, that is, from the perspective of the relevant businesses. This work is based on an analysis of case studies conducted in Israel in 2016. The study findings show similar reports of lack of funding access, despite the great diversity and variety of the companies in the sample, as manifested in their activities across an array of industrial sectors, their levels of innovation, their present lifecycle stages, and their broad size and age range. The present study contributes to an understanding of the existing market failure from the personal perspective of the company executives. The in-depth interviews provided a first-ever opportunity to obtain sensitive, seldom-revealed information and data, and afforded the opportunity to shed light from a different perspective on the difficulties ISTS face in obtaining financing for innovation. The study also has a practical application. In view of the importance of these businesses to the economy on one hand, and the funding difficulties presented on the other, the findings suggest that a solution to this market failure should be based on government intervention in developing new financing tools suitable for those companies.