Angel networks and venture capital associations can also be connected to other

Angel networks and venture capital associations can

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formal risk capital providers. Angel networks and venture capital associations can also be connected to other business groups to bridge the supply- and demand-side of markets. Deal flow through business angel networks can be enhanced if they are linked to public venture capital programmes and start-up initiatives, such as technology incubators. Governments can also increase the pool of start-ups and entrepreneurs through complementary schemes such as investment-readiness programmes for small firms and enhancing spin-offs from public research and universities. Governments can encourage merging of secondary stock markets to achieve more economies of scale The existence of appropriate exit mechanisms is essential in ensuring a well-functioning venture capital market. Exit provides an important benchmark of the profitability of venture capital relative to other investments. The success of exit affects fund-raising cycles as investors are willing to contribute funds only if their risk will be adequately rewarded. Early-stage investments, in particular, require a high target rate of return and call for more aggressive exit strategies, such as initial public offerings (IPOs). Secondary stock markets, which have less stringent admission requirements and lower costs compared to first-tier markets, are the favoured vehicle for small firm exits. During the 1990s, there was a proliferation of secondary stock markets across the OECD largely due to the success of IPOs of young technology-based firms on the NASDAQ in the United States ( Table 1 ). The Alternative Investment Market (AIM) of the London Stock Exchange began trading in 1995, followed by Le Nouveau Marche in France and the Korean KOSDAQ in 1996; the German Neur Market and the Belgian New Market in 1997, etc. OECD countries, however, have had varied success at building up these secondary
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24 stock markets and offering exits to small firms. The majority of these exchanges remain fragmented with low market capitalisation and liquidity. Currently, only a few markets have sufficient scope and scale to sponsor IPOs. In addition, these smaller markets are volatile and prone to speculative movements. While the robustness of IPOs in many countries in the 1990s led to unprecedented growth in venture capital fund-raising and investment, the burst of the technology bubble in mid-2000 greatly lowered stock market capitalisation and some exchanges were merged or disappeared.
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25 Table 1. Second-tier stock markets in OECD countries Country (stock market) Year of creation Number of initial public offers (IPOs) Number of quoted companies Market capitalisation (% GDP) 1999 2000 2001 2002 1999 2000 2001 2002 1999 2000 2001 2002 Sweden (O-List) 1988 .. .. 24 9 150 228 240 235 28.3 24.0 23.3 18.5 United States (NASDAQ) 1971 485 397 63 40 (1) 4 829 4 734 4 109 3 725 (1) 56.5 36.9 28.9 16.5 Canada (Canadian Venture Exchange) (2) 1999 2 425 403 330 122 2 358 2 598 2 688 2 504 1.7 10.2 12.7 9.7 Korea (KOSDAQ) 1996 160 250 181 176 453 604 721 843 22.0 5.6 9.5 5.0 Norway (SMB List) 1992 3 7 7 3 78 77 79 79 4.2 1.8 1.5 1.2 United Kingdom (AIM) 1995 67 203 109 78 347 524 629 704 1.5 1.6 1.2 1.0 Ireland (ITEQ) 2000 --- ..
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