FINANCING OF INNOVATIONS: PROBLEMS AND OPPORTUNITIES IN LATVIA

One of the leading contemporary strategic management thinkers professor Michael Porter identifies three stages of development of nations regarding competitiveness: factor-driven economy, investment-driven economy and innovation-driven economy. Developed countries of the world nowadays have moved to the latter model which is based on heavy attention to and investment in research and development. Current tendencies of development of countries are based not only on basic factors of production like natural resources, labor and capital but more and more on developed factors like technology, infrastructure, knowledge, access to different forms of financing. Development and competitiveness of modern economies are unthinkable without serious investment in innovations. Currently innovative companies face financing problems. Money lenders are not ready to lend money to innovative companies at the early development stages qualifying such deals as a high risk deals. Traditional financial sources are not suitable for innovative companies as cash flow of companies in early stages is mostly negative. There are several ways how to finance innovations. Typical types of financing innovations in Latvia are government and municipality capital, company capital, EU fund programs, capital investments, grants and guaranties as well as business angels. This paper will analyze and explain theoretical background of innovation financing possibilities in Latvia. Author will compare traditional sources of financing innovation and will stress strengths and weaknesses of each type as well as prepare suggestions for improvement of existing situation. The aim of this paper is to determine the most convenient and appropriate ways of financing innovation in Latvia.