Financing innovation: The role of Norwegian venture capitalists in financing knowledge-intensive enterprises

This paper focuses on the roles and functions of the Norwegian venture capital industry in the innovation system. A lack of competent capital is often mentioned as a serious obstacle for financing innovation, and in particular for financing knowledge-intensive enterprises at their start-up and early development stages. In these stages the supply of strategic activities is just as important as capital, and venture capitalists are assumed to provide their enterprises with both capital and knowledge. Venture capital investments are also geographically clustered in cities and urban areas, and cities are said to have specific innovation advantages which reduce transaction costs associated with venture capital investing. Particularly larger cities have both a diverse knowledge-base and the geographical proximity which seem to be a prerequisite for sharing and transfer of the often complex and non-codified knowledge that are related to financing new knowledge-intensive enterprises. A better understanding of the role venture capitalists play in the innovation system may not only enhance our knowledge of innovation processes and strengthen the basis for innovation policies, but may also contribute to a better understanding of the industrial dynamics and the spatial development of a knowledge economy. The data employed in the paper comes from in-depth interviews with venture capital firms and seed funds in Norway, and from a survey of portfolio enterprises. All data are collected in 2002 and 2003.