Entrepreneurship, Second Edition

9.4. Factors Affecting Availability of Financing

The three fundamental elements of an entrepreneurial society are an abundance of would-be entrepreneurs, plenty of market opportunities for new ventures, and sufficient resources—of which financing is a major component—for entrepreneurs to launch their new ventures.^[] Numerous environmental and societal factors affect the three basic elements, and in combination with the basic elements, they determine the degree of entrepreneurial activity in a region. We will now look at how financing correlates with entrepreneurial activity and the factors that affect the availability of financing. Because GEM includes many nations, we can see how informal investment and venture capital are related to environmental, societal, and governmental factors.

9.4.1. Total Entrepreneurial Activity and Informal Investing

The prevalence of informal investors correlates positively with the overall TEA index and three component TEA indices—opportunity, market expansion potential, and high job growth potential. And the amount of informal investment as a percentage of GDP correlates positively with two TEA indices—necessity and high job growth potential. Those correlations are convincing evidence that nations with more informal investing have more entrepreneurial activity, but they do not separate cause from effect. Informal investing and entrepreneurship depend on each other: Informal investment facilitates entrepreneurship, and entrepreneurship brings about ...