1. Moscow 2009 L. Mulukova, Е. Murzacheva, J. Filatova New Results in Early Entrepreneurship study in Russia, CEE and BRIC

2. Moscow 2009 Ekaterina Murzacheva Small business financing: Russia and countries of Central and Eastern Europe, 2006

3. 3 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Financial strategy of nascent entrepreneurs Payback amount Self-financing Descriptive analysis Financial structure Factor analysis Start-up/Own capital Payback time Expected returns Informal capital Formal capital

4. 4 New Results in Early Entrepreneurship study in Russia, CEE and BRIC The structure of financial sources: upper bound, 5% significance level Percentage of early entrepreneurs: demand

5. 5 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Factors influencing the early entrepreneurs’ choice of funding structure Hypothesis 3 Global effect The prevalence of informal investments in the economy characterizes the socio-economic development of a nation Hypothesis 2 Efficiency effect Early entrepreneurs‘ expectations about future returns are influenced by internal perception and financing opportunities Hypothesis 1 Scale effect Financial expansion of the early business depends on both internal motivation and financing opportunities

6. 6 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Empirical evidence (2006) Scale effect: Scale effect: the amount of start-up capital is a dependent variable Efficiency effect: Efficiency effect: the expected returns on the invested capital is a dependent variable Ordinal scale used: Ordinal scale used: contingency Kendall criterion Test quality: Test quality: the level of significance is in brackets Russia Hungary Slovenia Scale effect Germany Latvia Czech Republic Efficiency effect

7. 7 New Results in Early Entrepreneurship study in Russia, CEE and BRIC The influence of GDP per capita on the supply of informal funds in countries-GEM participants (2006)

8. 8 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Low expected returns are often combined with prevalence of informal financial sources Type of prevailing financial source determines the amount of start-up capital attracted: scale effect Expected returns are connected with the self-assessment of own abilities But: the results differ among various countries: weak formal financial systemIn case of countries with weak formal financial system informal investments substitute unavailable and/or unstable formal sources (India, China, Russia, Slovenia) sound formal financial systemIn case of countries with sound formal financial system the rate of informal supply is low (Germany, UK, Japan) not a loss of trust in formal credit institutions but high importance of social networks enables access to start-up funding in richer societiesGDP higher than average is combined with a higher role of informal funding (Iceland, USA, Ireland, Norway) – not a loss of trust in formal credit institutions but high importance of social networks enables access to start-up funding in richer societies Summary

9. 9 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Further prospective of the research 1.Informal support absorbs non-demanded business risk in the economy 2.The lack of the quality control and as a result credit risk concentration 3.Evaluation: Basel Committee on banking Supervision – IRB advanced methodology 4.Results: maximum share of the GDP needed to cover risks caused by entrepreneurial activity in order to make the economy more sustainable to systematic fluctuations % of GDP (USD, PPP) What is the sense behind excessive informal financing?

10. Moscow 2009 Julia Filatova The Phenomenon of Parallel Entrepreneurship in Russia, CEE and BRIC

11. 11 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Definitions  Two types of entrepreneurs mentioned in the literature:  Serial entrepreneurs - those who go through the successive stages of starting, developing, and closing a venture, and then move on to float a new venture.  Parallel (portfolio) entrepreneurs – those owing /managing more than one company at any one time.  Parallel entrepreneurship characteristics: Executive decisions decentralization; Risk diversification; Umbrella structure.

12. 12 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Level of Parallel Entrepreneurship: GEM Data, 2006 Level of parallel entrepreneurship in Russia – 22%.

13. 13 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Differences between parallel entrepreneurs and novice entrepreneurs Comparison of parallel entrepreneurs with novice entrepreneurs

14. 14 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Business strategies of parallel entrepreneurs RUSSIA Business activities: Wholesale and retail trade (40%), Personal/consumer service activities (18%), Transport and communications (13%). Average number of co-owners: 3 persons. Average number of employees: 5 workers. Estimated business growth: 1,8 times. Non-innovation business orientation. Low export potential. Financial recourses shortage  High integration into entrepreneurial networks. INDIA Business activities: Retail trade, hotels & restaurants (51%), Agriculture, hunting, fishing (11%), Manufacturing (9%). Average number of co-owners: 1 person. Average number of employees: 13 workers. Estimated business growth: 1,9 times. Rather innovation business orientation. Rather low export potential. Financial recourses shortage  High integration into entrepreneurial networks. CHINA Business activities: Retail trade, hotels & restaurants (43%), Manufacturing (19%), Personal/consumer service activities (13%). Average number of co-owners: 3 persons. Average number of employees: 18 workers. Estimated business growth: 4,5 times. Non-innovation business orientation. Rather low export potential. No financial recourses shortage. High integration into entrepreneurial networks. BRAZIL Business activities: Retail trade, hotels & restaurants (21%) Wholesale trade (21%), Manufacturing (19%). Average number of co-owners: 1 person. Average number of employees: 2 workers. Estimated business growth: 2,6 times. Non-innovation business orientation. Low export potential. No financial recourses shortage. Rather low integration into entrepreneurial networks.

15. 15 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Network business forming strategies:  Existing business transfer to a new legal platform (50%)  Businesses are coincide by the type of business activity BUT there are distinctions at the particular sphere (9%) Necessity based strategy: administrative barriers and business instability overcoming  New business supplement with the existing one (27%) Strategy of fastening in the market niche  Businesses are not connected with each other (14%) Strategy of maximum risk diversification OR strategy of personal preferences realization Business strategies of parallel entrepreneurs

16. 16 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Possible reasons for parallel entrepreneurship in Russia: Heterogeneous structure of parallel entrepreneurs Reasons for parallel entrepreneurship Opportunity based factors:  Personal features - strongly expressed «entrepreneurial spirit»,  Resource security: sufficient amount of social and human capitals.  Financial benefits (to gain benefits from the start-up status),  Growth-oriented behavior (using of social and economic capital and networks of already existing business to establish a new venture). Necessity based factors:  Administrative barriers pressure,  Business and personal risks diversification strategy in conditions of environmental instability.  Tax minimizing strategy,  Tacit growth strategy in the situation of high risks of vertical growth (pressure of bigger firms dominating the market, high taxes, etc.). Possible reasons for parallel entrepreneurship in other countries:

17. 17 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Summary  The parallel entrepreneurs identified during the APS 2006-2008 in Russia are mainly self-employees and owners of micro-business.  Entrepreneurial group with high growth potential from the point of social and human capitals. BUT  Entrepreneurial group with low growth potential from the point of structure of financing sources and innovation orientation.

18. Moscow 2009 Linara Mulukova Team entrepreneurship in Russia, Eastern Europe and BRIC: some evidences of GEM 2006-2008 2 nd year of MSc Applied Methods of Social Analysis of Markets Programme

19. 19 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Team entrepreneurship Team entrepreneurship - conducting or starting a business jointly with partners, sharing ownership with them. Team entrepreneurship is one of the means of risk diversification and fundraising, raising capital of different forms (economic, social, human, etc.). Possible reasons for running business collectively: - entry barriers - absence of support infrastructure - highly developed social networks - cultural and historical prerequisites

20. 20 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Team entrepreneurship in Russia Team entrepreneurs vs individual ones: - younger (means - 33 vs 37, medians – 31 vs 38) - opportunity-based (38% vs 1% - opportunity (have job) and 9% vs 45% - necessity (+opportunity)) - more favourably assess regional conditions for business start-up (44% vs 31%) - less working full time (50% vs 73%), more retired and students - more nascent entrepreneurs (65% vs 28%) - less new and established owners (23% and 19% respectively vs 44% and 34%)

21. 21 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Dynamics of team entrepreneurship in Russia

22. 22 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Team entrepreneurship in Russia, EE and BRIC countries Top-5 countries: Iceland (70%) United Arab Emirates (68%) France (66%) Russia (64%) Belgium (60%) Bottom-6 countries: Jamaica (26%) Brazil (27%) Indonesia (30%) Philippines (32%) Japan (34%) Thailand (35%) Eastern Europe BRIC

23. 23 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Team entrepreneurship in Russia and EE and BRIC countries Eastern Europe Czech Republic – more business angels; more think that “there are lots of good opportunities for starting a business”; more think that “starting a new business is a good career choice”; less work full time, more retired and students; more nascent, less established entrepreneurs Hungary – more have required knowledge and skills; more nascent, less established Russia less think that “successful new business leads to high level of status and respect”; more nascent entrepreneurs, less owners of functioning business

24. 24 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Team entrepreneurship in Russia and EE and BRIC countries BRIC India – more female; more have negative business experience; less have required skills; less work full time, more homemakers; lower income; lower level of education; more not working; more nascent entrepreneurs, less owners of functioning business China – less have negative business experience; less have required skills; less think that “people prefer uniform living standard’; less think that “starting a new business is a good career choice”; less work full time, more work part time or homemakers; higher income; higher level of education; more not working; more nascent, less established entrepreneurs Brazil – more know other entrepreneurs; more think that “there are lots of good opportunities for starting a business”, that “people prefer uniform living standard”; higher income; higher level of education; more nascent, less established entrepreneurs Russia less think that “successful new business leads to high level of status and respect”; more nascent entrepreneurs, less owners of functioning business

25. 25 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Team entrepreneurship in Russia and EE and BRIC countries Eastern Europe 2006: 65,8% matches Age “-” Agrees that “Starting new business is a good career choice” “+” Owner of a business (new or established) “-” Russia 2006: 66,1% matches Nascent entrepreneur “+” Russia 2006-2008: 71,2% matches 2007, 2008 “-” Age “-” Owner of a business (new or established) “-”

26. 26 New Results in Early Entrepreneurship study in Russia, CEE and BRIC Team entrepreneurship in Russia and EE and BRIC countries BRIC with Russia 2006: 75,8% matches Brazil, China, India “-” Age “-” Has knowledge and skills to do a start-up “-” Agrees that “People prefer uniform living standard” “+” Higher levels of education “+” BRIC without Russia 2006: 76,3% matches Age “-” Expects to do a start-up in 3 years “+” Shut down business in past 12 months “-” Has knowledge and skills to do a start-up “-” Higher levels of education “+”

27. Thank you for your kind attention!