Keyword

Key words: Entrepreneurship, venture capital, tax incentives, enterprise investment scheme, SEIS, UK.

Abstract

This systematic literature review investigates the literature and theoretical underpinnings of government support schemes for micro, small and medium scale enterprise (MSME) financing with a focus on the UK's Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). The review compares these schemes with similar schemes from different countries and regions of the world, especially Australia and India. The review covers 49 papers sourced from ProQuest, Taylor Francis and Scopus databases. The selection was limited to peer-reviewed, full text papers, with the search criteria further defined by source type, document type, age/recency, subject area, and journal publication title. The review indicates that eight major theories are commonly employed in the literature to justify government interventions in MSME equity and debt financing globally. These theories are categorised as demand-side theories and supply-side theories. The demand-side theories include resource-based view, pecking order theory, signalling theory, discouraged borrower syndrome, internal resources theory, and demand-side failures. The supply-side theories are finance escalators, and supply-side failures. The review indicates that the UK’s EIS and SEIS have made significant capital contribution to MSME financing howbeit the schemes require improvement for greater impact. Whereas the UK’s SEIS and EIS are focused on equity financing for MSMEs, similar schemes in other countries are mainly debt financing interventions. Unlike other schemes that focus on correcting either supply-side failure or demand-side failure, the UK’s EIS and SEIS have focused on correcting both supply- and demand-side failures. Overall, the UK government’s Enterprise Capital Fund addresses the UK’s MSME equity gap while providing employment, innovative impacts, and revenue. However, further progress is required to achieve maximum business exits and to enable early-stage private Venture Capital make sustainable system impacts. Verifiable assessment and evaluation criteria might be required for qualifying companies, perhaps including innovative, business viability and competitive advantage criteria, amongst others. Several studies have investigated MSME financing, venture capital and the UK’s venture capital schemes, but not many have compared the UK’s EIS and SEIS schemes with other intervention schemes around the world as undertaken in this review. This research is relevant to policy makers, angel investors, entrepreneurs and venture capitalists. This research is foundational to potential further survey research into the UK’s venture capital schemes.


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