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Subsidies: Lethal weapon or necessary good?


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BY : Diego GutiérrezApril Fri, 2013

The other day, in a meeting I had with the founder and director of a well-known start-up incubator, I was confronted with his opposition to any kind of subsidy for the creation of companies. And he was also consistent with his opinion, he had set up 5-7 companies in the last year and had not asked for public support for any of them.

Although public funding programmes have been reduced due to government budget cuts, there are still several that remain, such as, for example, the plan moves forward for ICT companies.

Entrepreneurs against public aid

In recent times, several entrepreneurs have expressed their rejection of the ecosystem that is created around subsidies. The main reason they give is that many projects are created mainly to obtain the subsidy and, in their opinion, are therefore flawed from the outset. As a consequence, these projects are not market-oriented, but rather oriented towards meeting the requirements set by the public institution. We all agree that it is not the role of the administration to determine which markets are more profitable and forward-looking than others.

Opinions in favour of public funding

For many others, on the other hand, the public role is necessary as it fulfils the subsidiary function to private initiative. In the early stages of any enterprise, the absence of private support is covered by public funding.

Albert Fernández (Professor at IESE) tells us about the benefits of public funding in his video:

- As loans do not lead to a dilution of the entrepreneur, i.e. they do not reduce his shareholding.

- The good conditions of public loans both in terms of periods and interest rates.

- The most active entities at Spanish level are ENISA and CDTI, and at regional level Madrid Emprende. ICF and SPRI.

Another alternative: promoting risk-taking "early adopter" customers

But undoubtedly the best help a start-up can get is a good order book. Sales are the healthiest and most profitable financing. Some entrepreneurs tell us that what they ask the authorities is that they are the first to contract their services and/or products.

Another alternative is the development of crowdfunding as a way of kickstarter for creative projects but not in exchange for equity participation but as a way to finance the first series of products in exchange for better contracting conditions in the future.

 

Diego Gutiérrez Zarza

ABRA INVEST
Web: www.abra-invest.com

Blog: http://abrainvest.wordpress.com/

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