Blockchain and other innovations in entrepreneurial finance: Implications for future policy

Abstract

More than a decade after the Global Financial Crisis (GFC) of 2007-08, entrepreneurial finance has exhibited enormous changes, notably in the rise of alternative non-bank financing (Owen et al, 2018; Cumming and Johan, 2017; Kraemer-Eis et al, 2017; Bruton et al, 2015; Moenninghoff and Wieandt, 2013). This has been most acutely experienced in the provision and delivery of early stage and innovative business finance – the focus of this special issue. The ensuing innovations in entrepreneurial finance have taken place in developed and developing economies, presenting considerable challenges to policymakers (Mason, 2018). 
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\nThe problems associated with early stage innovation finance leading to funding gaps are long recognised (MacMillan, 1931), notably due to information asymmetries, lack of collateral, lack of market traction, large amounts of patient capital required, and high proportions of failure rates (North et al, 2013; Lee et al, 2015). These have been exacerbated through post GFC credit rationing (Cowling et al 2012; Lee et al 2015) and re-positioning of established forms of debt and equity risk finance to later stage investment (Baldock and Mason, 2015). Given the rationale for encouraging innovative SME start-up and growth as a driver for economic recovery and growth (Nesta, 2009; Lerner, 2010), policymakers across the globe have sought to encourage new forms of early stage finance for innovative SMEs (Wilson and Silver, 2013). Whilst there have been a host of journal special issues examining specific new forms of entrepreneurial finance (Bonini et al, 2019); Cumming and Groh, 2018; Bruton et al, 2015; Harrison, and Baldock, 2015) such as crowdfunding, peer to peer (P2P) and more latterly blockchain tokenization (O’Dair, 2017) and the reasons for the emergence and roles of new players in the entrepreneurial finance market (Block et al, 2017), such as crowd funding platforms, accelerators, angel networks, seed venture capital (VCs), asset based financiers, challenger banks and new forms of early stage public investment feeder markets (Baldock, 2015), considerably less has been written about the public policy challenges this presents. 
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\nThe focus of this Special Issue is a contemporary examination of the new forms of entrepreneurial finance evolving for innovative early stage SMEs which are often pre or early trading and do not have sufficient track record to attract more traditional bank debt and venture capital risk finance. As Lerner (2010) and Mazzucato and Penna (2016) recognize, the creation of a flourishing and sustainable early stage innovation finance market in any economy (developed or developing) requires favorable institutional and regulatory frameworks, suggesting the need for holistic policy approaches to stimulate both the demand and supply-sides of the entrepreneurial finance market or ecosystem (Hwang and Horowitt, 2012; Brown and Mason, 2014). 
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\nStrategic Change has been at the forefront of publishing cutting-edge contemporary research examining these changes, notably featuring new forms of crowdfunding and blockchain finance and emerging market developments in China and India. It is therefore a natural home for the dissemination of the pioneering research papers presented in this issue. These were drawn from an initial call for papers at the annual Institute for Small Business and Entrepreneurship (ISBE) conference in Belfast, November, 2017 and one day conference held by the ISBE Entrepreneurial Finance Special Interest Group at Birmingham City University in March, 2018. This resulted in the eight peer reviewed papers presented. The special issue editorial team are particularly grateful to the Strategic Change Chief Editor Professor Carlo Milana and the anonymous expert peer reviewers for their guidance in the development of these papers.