The entry of new innovations into the market is an essential condition for the development of the economy, as well as the growth of the welfare of the society. As a result of the decrease in economic activities caused by the pandemic, entrepreneurs are looking for new solutions to promote business.
In order to continue to successfully develop business in Latvia, especially small and medium-sized companies, it is necessary to attract additional funding. Classical financing with lending instruments from credit institutions is losing its relevance and is not business-friendly – a complex and time-consuming process, during which banks evaluate all possible risks related to the issuance of a loan for a long time, protecting themselves from unwanted market and financial risks that may arise during the life cycle of the loan. in addition, there are high interest rates.
As world trends show, for alternative financing – attraction of professional investors, Crowdfunding platforms, innovation centers, state financial and non-financial support programs, Regulatory sandbox instruments, FinTech services, etc. - has a promising perspective in the future, only its potential is still underestimated in Latvia.
Attracting professional investors is time-consuming and at the same time challenging, because it is important to find an investor who is interested in the specific business area, and in addition to buying company shares, the investor will want to gain control over the company in order to be able to influence key decisions.
The regulatory sandbox is a support program established by the Financial and Capital Market Commission (FCMC) that offers a special regulatory regime that allows innovative idea promoters, project teams and start-ups to develop new business models or services in cooperation with the FCMC before offering them on the financial market or scaling up operations in the European Union , and also allows the supervisor to get to know and identify possible barriers to the development of innovations.
Several financial and non-financial support programs have been developed at the national level, which should not be ignored, but it is important to take into account that in order to obtain them, it will be necessary to meet complex legal requirements - even after obtaining the support. On the other hand, if the requirements are not met after obtaining the support, large fines should be expected.
There is a very high demand in the areas of collective financing services, so the supervisory institutions have developed a regulatory base aimed at development, to strengthen the stability and reliability of the market in this area, as well as to ensure the protection of the interests of customers.
There are usually three types of actors involved in the provision of crowdfunding services: the project owner who proposes the project to be financed, investors who finance the proposed project, and an intermediary organization in the form of a crowdfunding service provider that brings project owners and investors together on an online platform.
Capital crowdfunding platforms have a competitive advantage over other alternative forms of financing, as they offer relatively simple and clear mechanisms for obtaining funding, offering investors a percentage of equity between 5% and 20%.
Despite the fact that several types of alternative financing mechanisms are available in the public environment, currently the demand for alternative financing is greater than the supply. As well as in comparison with neighboring countries, Latvia has significantly more possibilities for attracting alternative financing in the field of business promotion.
In order to ensure the operation of the private and venture capital industry in addition to public financial support, the Latvian government is planning to create conditions that will promote institutional and private investors' investments in venture capital funds, including promoting the understanding of entrepreneurs about the availability of various types of financing and compliance with the company's development strategy and phase.
Source: Delfi