Can Government Intervention make firms more investment-ready? A randomized experiment in the Western Balkans

Many innovative start-ups and small and medium-size enterprises have good ideas, but do not have these ideas fine-tuned to the stage where they can attract outside funding. Investment readiness programs attempt to help firms to become ready to attract and accept outside equity funding through a combination of training, mentoring, master classes, and networking. This study conducted a five-country randomized experiment in the Western Balkans that worked with 346 firms and delivered an investment readiness program to half of the firms, with the control group receiving an inexpensive online program instead. A pitch event was then held for these firms to pitch their ideas to independent judges. The investment readiness program resulted in a 0.3 standard deviation increase in the investment readiness score, with this increase occurring throughout the distribution. Two follow-up surveys show that the judges' scores predicted investment readiness and investment outcomes over the subsequent two years. Treated firms attained significantly more media attention and were 5 percentage points more likely to have made a deal with an outside investor, although this increase is not statistically significant (95 confidence interval of -4.7 to +14.7 percentage points). 

Policy implications 
We believe these results offer lessons for governments deciding whether and how to use such policies. Starting with firms that express interest in outside funding, but that require many steps to take place before being in a position to receive funding may end up including many firms for which investment readiness is not the main constraint to receiving outside funding and to firm growth. As a result, investment readiness programs that start from the demand side of outside financing may have stronger impacts on getting firms to take steps towards investment readiness, than on investment outcomes, where other constraints also play a role. A possible alternative to test would be to start from the supply side, starting with investors and asking them for a list of firms that are at the margin of being investible, but for which assistance on specific aspects of investment readiness are needed.
"McKenzie, D., Cusolito, A. P., Dautovic, E. (2018). ' Can Government Intervention make firms more investment-ready? A randomized experiment in the Western Balkans'. World Bank Policy Research Working Paper."