Finance & PSD Impact SEPTEMBER 2018 The Lessons from DECFP Impact Evaluations ISSUE 51 Our latest note summarizes an experiment that aims to expand the supply of investible firms by helping innovative start- ups and SMEs become readier to accept outside investment. Can Government Intervention Make Firms More Investment-Ready? Ana Paula Cusolito, Ernest Dautovic, and David McKenzie Innovative start-ups and SMEs in firms had an average of 6 employees, had developing and transition countries often been in business for 2.5 years on average, and have good ideas, but may not have these ideas are involved in high-tech innovative fine-tuned to the stage where they can attract industries such as cloud computing and big outside funding. This is the case in the data, app development for a wide range of Western Balkans, where there is a perceived business and personal services, lack of investment readiness of innovative pharmaceutical products, etc. Half of the start-ups to be in a position where they can founders have post-graduate education. compete for, and take on, outside equity. Investment Readiness Programs are a Experimental Design and Intervention relatively new intervention that are intended A sample of 346 innovative SMEs were to provide a comprehensive approach to randomly divided into two groups: overcoming the constraints to firms receiving outside investment through a mix of Treatment group: 174 firms were offered an individualized training, mentoring and intensive two-month program that included a coaching, at an intensity that is sufficient to structured online business assessment, make firms more investment-ready, while individualized mentoring (averaging 11 maintaining a cost that is low enough to be hours per firm), weekend masterclasses, and scalable to large numbers of firms. pitch training. The cost was approximately These programs have now been used in $4,000 per firm. the U.S. by the National Science Foundation, Control group: 172 firms were offered an and by several government agencies in online course through the University of Europe (e.g. The UK Government’s Small Texas that cost $153 per firm. Business Service and Enterprise Ireland), along with pilot programs in Romania and Take-up rates for the treatment group were Malaysia. However, to date there is no causal higher than typical business training evidence as to their effectiveness. programs, with 90% completing the online assessment, and 79% receiving mentoring. In Pioneers of the Balkans: A Five Country contrast, usage of the online program by the Investment Readiness Program control group was low, with only 37% We launched a program called Pioneers completing at least one online module. of the Balkans in five countries in the Western Balkans: Croatia, Kosovo, Following the intervention, both treatment Macedonia, Montenegro and Serbia. The and control firms were invited to a pitch event program was marketed as a competitive in collaboration with the Belgrade Venture program designed especially for innovative Forum. Panels of independent judges then entrepreneurs seeking or considering venture scored the firms on different aspects of their financing. investment readiness, and selected 54 The program attracted young and finalists to go onto pitch to investors. innovative firms. At the time of application, Do you have a project you want evaluated? DECRG-FP researchers are always looking for opportunities to work with colleagues in the Bank and IFC. If you would like to ask our experts for advice or to collaborate on an evaluation, contact us care of the Impact editor, David McKenzie (dmckenzie@worldbank.org) We measure impacts of this program on • Using follow-up surveys at 6 months scores in this competition, on subsequent (79% response rate) and 18 months (85% media coverage over the next two years, and response rate), we track whether this on firm outcomes over the next two years. increased investment readiness translates into more investment. We find positive, Results but statistically insignificant, impacts on • The investment readiness program firm survival, three categories of increased investment readiness as scored investment readiness, and on steps by independent judges (Figure 1). This towards receiving external financing. occurs in all dimensions of the score Treated firms are 5 percentage points (team, technology, traction, market, more likely to receive external financing, progress made, and presentation). The but the 95% confidence interval of (- increase is 0.3 standard deviations. 4.7p.p., +14.7p.p.) includes zero and negative impacts. Figure 1: Investment Readiness Scores for the Treatment Group are Higher on All Policy Implications Dimensions This study shows that investment readiness programs can help make firms more investment ready, but that it is harder to detect impacts on investment outcomes. There are two related suggestions for how to further improve this: 1. A first point is that detecting impacts on firm outcomes requires larger firm samples or larger impacts on initial readiness. This suggests working with many more firms, or with a more intensive intervention. • As a result of these higher scores, treated 2. Starting with firms that express interest firms are twice as likely to get selected to in outside funding, but that require many pitch at the Balkans Venture Forum (12% steps to take place before being in a of the control group and 23.5% of the position to receive funding may end up treatment group were selected). Out of including many firms for which eight category winners at the Forum, 6 investment readiness is not the main came from the treatment group and 2 constraint. Future programs could from the control. consider focusing more on firms closer to • Using data which tracks media mentions receiving investment, by working more in more than 250,000 global news sources closely with investors to identify target in 25 languages, we find treated firms firms. attract more media attention over the next two years. For further reading see: Cusolito, Ana Paula, Ernest Dautovic and David McKenzie. 2018. “Can Government Intervention Make Firms More Investment-Ready? A Randomized Experiment in the Western Balkans” World Bank Policy Research Working Paper No. 8541. Recent impact notes are available on our website: http://www.worldbank.org/en/research/brief/finance-and-private-sector-impact-evaluation- policy-notes