Coming of age: from start-up to expansion within environmental technology
The purpose of this study is to provide new information that will help policy makers assess whether the time restriction of eligibility for start-ups is relevant in the environmental technology market segment. The study investigates whether the five-year limit in Article 22 in the European Commission regulation No. 651/2014 is too restrictive. The purpose is met by validating two hypotheses. These hypotheses are based on an analysis of the current literature in relevant fields.
Den här rapporten finns endast på engelska. Svensk sammanfattning finns i rapporten.
The literature indicates that there might be special conditions in the environmental technology market segment, which makes time to market longer for enterprises in this segment compared to enterprises in other industries. However, no study has been found to actually compare time to market for enterprises in the environmental technology market segment with similar start-up enterprises active in other segments.
The European Union State aid rules have several aims, two of which are relevant to this study: to bridge the investment gap/funding gap in the start-up phase until young enterprises reach the expansion phase, and to protect and improve the quality of the environment. There are, thus, twin objectives for aiding environmental technology enterprises in the early phases.
There is no exact definition of when the expansion phase begins. The threshold between micro-enterprises and small enterprises has, in this study, been used to define when an enterprise moves from the start-up phase to the expansion phase. For this study 443 eligible limited companies still active in September 2016 have been chosen as the sample population. The statistical analysis shows that an average new eligible environmental technology enterprise, which succeeds in its growth, needs more than five years after registration to (i) go from start-up phase to expansion phase and to (ii) no longer fulfil the non-time related eligibility criteria of Article 22. In average it takes 13 fiscal years (i) and 13-15 fiscal years (ii).
For the most successful enterprises turnover and balance sheet total indicate that a distinct growth phase starts around the 9th and 12th fiscal year respectively. The growth accelerates around the 16th fiscal year. Later on, the growth seems to level out for turnover, but continues for the balance sheet total. These results are in line with other studies, which show that a growth phase among Swedish enterprises seems to start around the 8th year and that high-growth enterprises have a mean of 19.8 years when they start the high-growth phase. If the ambition of public funding is to bridge the investment gap to the expansion phase for the majority of the enterprises, this study indicates that the five-year time limit may not be adequate for this purpose when applied to environmental technology.
Further studies are needed to determine if there is a more appropriate time limit that would bridge the investment gap. The growth patterns also need to be analysed more in depth. It would be of special interest to analyse further the innovative enterprises, since there are indications in the data used in this study that they have lower growth. Also, it would be of interest to compare the growth of new environmental technology enterprises with other new enterprises. It is essential to investigate if more enterprises would be expected to reach the expansion phase, if state aid is given to enterprises older than five years. Such a study is not easy to carry out, but nevertheless of great importance. Such further analysis would give valuable information to policy makers. It would be instrumental in designing the state aid system, so as to better promote the growth of start-up enterprises and the diffusion of environmental technology.