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Our View: State funding for start-ups a risky business

Keeping state bureaucrats as far away as possible from the decision-making process is vital

THE COUNCIL of Ministers announced on Wednesday the setting up of an Investment Fund which the government spokesman, Prodromos Prodromou, said aimed to strengthen entrepreneurial innovation and creativity. The state will put up €20 million and hopes it will also attract funding from other interested investment funds, thus offering an alternative source of financing for new business that depend on the banks.

Prodromou said the new fund was a mechanism to strengthen the efforts for growth and particularly innovation and start-ups. This alternative type of funding, which he described as innovative, exists in many advanced countries. Arguably the most important aspect of this scheme is that it will not be in the hands of civil servants. There will be no state participation in the decision-making process, which will be based on strictly business criteria and run by investment professionals.

Keeping state bureaucrats as far away as possible from the decision-making process is vital for the scheme to have a chance of serving the purpose it was set up for – offering funding to innovative and new business. If applicants had to wait 20 committee meetings to be held before they receive a reply one or two years later there would be no point to the fund. Keeping the state at arm’s length would also limit, if not eliminate, political interference in decision-making, which is a good thing.

The fund’s success will depend on the people chosen to manage it. If it works well and proves not to be a scheme devised to assist friends of the government and political parties, it could attract money from private investment funds as the government hopes. The only risk is that there might not be adequate start-ups or innovative businesses to fund in which case money will not be put to good use.

Innovative business ideas and start-ups with real potential usually find funding from the market. State schemes to bolster entrepreneurship rarely yield the desired results and are usually exploited by businesses with political connections. The government’s primary objective should be to cultivate and encourage an entrepreneurial culture because state funding cannot create it. But this is easier said than done. The ambition of most of our youth is to get a job in the public sector rather than risk starting a business.

In a way, state funding of new business is another, unnecessary, confirmation of the widely held belief that the state should take charge of entrepreneurship as well, because in Cyprus the free market cannot be trusted.

 

 

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