This document proposes a model for developing an impact capital industry in emerging markets like the Mediterranean region. The model outlines five sequential phases: 1) preliminary, 2) pre-emergence, 3) emergence, 4) development, and 5) consolidation. Each phase involves specific actors, activities, and issues. The preliminary phase focuses on R&D and entrepreneurship culture, while the pre-emergence phase establishes policies and human capital. The emergence phase works to attract investors and start new venture capital firms and companies. Development expands local and international networks, and consolidation coordinates the industry and helps it adapt to crises. Public-private partnerships and long-term support of education, innovation and entrepreneurship are seen as key to successfully implementing

1. 1
Title:
Supporting programs to develop impact capital in the Mediterranean Region
Abstract
The paper aims at underling the great opportunity that impact capital represents, as well the
role institutional actors can play in improving policies, norms, and setting up supporting
programmes to be carried out in order to attract new capital and to facilitate the creation of
new impact capital funds.
Country empirical analyses have been carried out spending long periods in the field (Egypt,
Jordan, Tunisia, Palestine, and Israel) researching in close cooperation with local and
international stakeholders, which are made-up of both past and present actors in the venture
capital industry of the region.
The paper highlights the role of the policy makers to ensure impact capital industry
development. A complete set of policies must be set in place geared toward the local and
regional conditions that continuously enable the following of changes in circumstances and
market evolution.
As learned from the time spent in the region, a long-term economic development strategy
should be adopted. Extremely challenging but relevant for the region is to implement
programs focus upon supporting R&D activities to bring technology into traditional industries
and products, the enhancement of innovation capabilities, and the stimulation of
entrepreneurship culture. Therefore, governments should commit resources and all kind of
efforts to enhance programs and projects leveraging capital and commitments of both public
and private institutions.
Initiatives must be always undertaken aiming at fostering collective learning and increase
awareness about the importance of fostering impact investments to create positive impact
alongside financial return.
Keywords
Impact Capital, Venture Capital, Mediterranean Region, Emerging Market, Supporting
program, Policy maker.

2. 2
Supporting programs to develop impact capital in the Mediterranean Region
Introduction
This paper aim at understanding methodology and programs to develop and foster impact
capital industry in emerging markets with a focus on the Mediterranean region.
Considerations reported are based on information collected from the field and stakeholders
interviewed making an effort to get answers to some questions. Does it make sense to develop
impact capital as alternative asset class in countries where political turmoil and social
problems are spreading? At which level of intensity should the involvement of public
institutions in promoting supporting programs be?
The specific objectives pursued during the entire analysis were:
- To draw policy-makers’ attention to proposals and recommendations to set up and
consolidate a venture capital industry in emerging markets.
- To define some concrete and creative support programs to be carried out by both
public and private actors in order to exploit synergies and reach common interests.
The research recalls the great opportunity that impact capital represents, as well the role
institutional actors can play in improving policies, norms, and initiatives to be carried out in
order to attract new capital and to facilitate the creation of new impact capital funds.
Country empirical analyses have been carried out spending long periods in the field (Egypt,
Jordan, Tunisia, Palestine, and Israel) researching in close cooperation with local and
international stakeholders which are made-up of both past and present actors in the venture
capital industry of the region.
The definition of venture capital is very controversial due to the mixed use of the terminology
of venture capital and private equity, especially when it comes to investing in later stages of
company operations.
Venture capital can be presented as a financial activity by which professional investors
support high-growth small to medium size entrepreneurial talent with medium to long term
equity finance and business skills to exploit market opportunities and thus obtain long term
capital gain (Bygrave and Timmons 1992).
Venture Capitalists act as financial intermediaries between investors and entrepreneurs, most
commonly drawing funds from a wide variety of sources including private investors, pension
funds, banks and insurance companies.

3. 3
Special attention is paid to understand the positive role institutional investors can play to set
up institutional venture capital, also called formal venture capital (Landstrom 2007).
Government institutions can finance venture capital organizations with a mission to invest in
industries that are crucial for the country development as well as to foster particular issues
such as innovation for traditional industries, so setting up new companies and supporting
growth of micro-small enterprises operating in significant sectors and in underdeveloped
regions.
Concerns to Develop Impact Capital
The concept of venture capital is link to impact capital and impact investments. Venture
capital industry and technique represents a way to improve impact investments.
“Impact investments are investments intended to create positive impact alongside financial
return” (Saltuk 2011). There are many factors to be taken into consideration to set up
initiatives and favour proper processes in order to foster venture capital operations for impact.
A calibrated and well-defined institutional action plan can have an active role in spurring
impact capital industry emergence and developments. Three main issues are identified as
priorities in order to create the preliminary conditions necessary for impact capital emergence
and consolidation:
- Supporting education and R&D programs through a number of special incentive schemes,
using grants and awards.
- Financing early stage, high-tech investments and innovative start-ups; in many countries
governments are engaged directly or indirectly in supplying capital to new technology
based firms.
- Supplying capital for social venture capital and impact funds.
Empirical analyses carried out seem to prove the importance of government intervention and
active role at policy level. Nevertheless, it is controversial and difficult to establish a
permanent and viable policy. It is important to promote partnership among public and private
institutions to foster R&D programs and launch special initiatives to enable conditions
ensuring a sound impact capital industry. Governments must sustain education supporting
universities and executive training centres, projects, and proposals, as well. Increasing ways
to improve technical know-how and educate a young generation of researchers, entrepreneurs,

4. 4
financial experts and specialized professionals, significantly contributes to the development of
new impact funds.
Processes to Set Up a Venture Capital Industry for impact in emerging markets.
Most of the literature related to venture capital development and policy for venture capital
emphasizes the need for effective financial regulation and capital market structure, as well as
legal and tax frameworks for LP and GP operations (Black and Gilson 1998; Gompers and
Lerner 1998; OECD working papers and country studies).
A lack of venture capital investors and operations is not only a lack of money but a lack of a
comprehensive system representing a new industry. During the last few decades, governments
and national policy-makers in different countries and states have tried to establish a
VENTURE CAPITAL industry working exclusively at regulation level reducing of capital
gain taxes, providing tax benefits programs, offering guarantee systems, among other
initiatives. All these initiatives, although important, are not sufficient.
Venture capital industry is correlated to a more evolutionary prospective and to a broader
context; an approach that is confirmed by relevant literature (Avnimelech & Teubal 2004,
2006; Becker & Hellmann 2005; Bottazzi 2004; Florida & Kenney 1998;). In other words,
attention must be paid not only on the money supply side but an emphasis must be placed on
the investment opportunities side as well. It is mandatory to set the conditions for the
existence of an adequate number of high quality deals and to have a good number of
entrepreneurs that understand the venture capital investment process as an opportunity for
their business growth and success.
In this regard, R&D support and innovation is required. Capable policy makers, academic
consultants, and specialized professionals are called to define proper policies and programs,
undertake research about policies implemented in other countries, their effectiveness and
impact to the given context. It is important to learn from relevant experiments, successful
actions, and from failures and deficiencies, as well.
Empirical analyses carried out and the failure of venture capital policies in many other
countries confirm the assumption that an appropriate policy framework to properly developed
venture capital operations should be based on sequencing phases rather than in a simultaneity
of actions. It is not true that once there are investors and venture capital firms, the right
investment opportunities (start-ups and SMEs) will consequently emerge (Avnimelech G. and
Teubal M., 2004).

5. 5
For this reason, a model to develop a venture capital industry, particularly in emerging
markets, is hereafter presented together with recommended actions for policy makers that
must be set in place to facilitate the emergence of this strategic industry.
A model for Venture Capital Industry Development in Emerging Markets
The lack of good investment opportunities and well prepared entrepreneurs is as important as
a lack of investor capital. From past experience and failure of European and American policy
makers during the 80s and 90s, it is clear now how important it is to create a positive
environment for venture capital development supporting innovation and high-technology
growth as well (Becker & Hellmann 2005).
Government programs and public policy failure was related to fact initiatives committed to
established venture capital industries regardless of any related efforts to establish high-tech
centres and clusters focused on innovative enterprises (Florida and Smith, 1993).
It follows that for public action to be successful in fostering the venture capital industry these
must be part of a broader and more comprehensive set of policies which support financial
issues from one side and industrial clusters from the other side. A comprehensive support
which embraces the whole high-tech issue such as R&D, innovation, business application,
start ups, together with industry, marketing, management issues and necessary coordination is
mandatory. It is also crucial for an emerging market to define its strategy on how to attract
and/or train high quality professionals for the VENTURE CAPITAL industry, with venture
capital capabilities and full venture capital industry comprehension (Avnimelech G. and
Teubal M., 2005).
Therefore, considering the complexity of this matter and based on industry research and
empirical analyses carried out, a Model is proposed to foster venture capital industry
development, particularly in emerging markets. The Model introduces correlated processes to
be faced in order to develop a venture capital industry and each of these processes has been
carefully linked to its environment and geographical context.
The model has been developed based on the analysis and evolution of the Israeli experience
of the last four decades (Avnimelech G., 2008).
Model for Venture Capital Industry Development in Emerging Markets

6. 6
Phases &
Processes
Issues Actors Activities & Instruments
Preliminary
Economic Conditions
Entrepreneurship and
R&D Culture
Government – Ministries
Universities & Research
DFIs, MODs &NGOs
Reduce Bureaucracy and
Regulation
Increase Business and
Financial Awareness
Sustain Research
Pre
Emergence
R&D/Innovation
Policy Framework
Human Capital & VC
Awareness
previous +
Government - Policy makers
DFIs, MODs &NGOs
Multinational Enterprises
Start-ups
Tax & Legal Framework
Supporting Programs
Training, Scholarship
Grants and Risk Control
Emergence
Tax & Legal
Catalyse Know How
VC Industry
Awareness
previous +
Local Investors & VC firms
from Scientists to
Entrepreneurs
Companies & Local
Managers
DFIs, MODs &NGOs
Regulations and Laws
Set up VC Firms
Set up Innovative Companies
Capacity Building
Development
Catalyze Capital
Operations/Deals
Local Networking
M&A Markets
previous +
Regional Investors & Global
VC
Int.al Managers &
Entrepreneurs
Specialized Professionals
MNEs, DFIs
VC Firms Strengthening
SMEs Growing
Transparency & Governance
Value Added Services
Events/Conferences
Consolidation
Coordination
Standardization
International
Networking
Globalisation
Capital Markets
previous +
VC Associations
Enterprises Associations
Institutional Investors
Stock Exchange
Events/Conferences
Sharing Data & Experiences
M&A/Industrial Deals
IPO/Listing Companies
Source: Avnimelech G., 2008 and own elaboration DFIs – Development Financial Institutions
MODs – Multilateral Organizations for
Development
MNEs – Multinational Enterprises
MoF – Ministry of Finance
MOFTI – Ministry of Foreign Trade and
Industry
A process is here identified as a set of structured activities and related relationships among
categories of actors that are typically part of a venture capital industry. These actors and the
actions they can set in place to foster venture capital operations have to face different issues
along five main sequential phases: preliminary, pre-emergence, emergence, development and
consolidation phase (Avnimelech G. and Teubal M., 2004).

7. 7
The preliminary process sees mainly interaction between supporting institutions and young
generation of researches and students. Preliminary and basic initiatives must be set in place to
create R&D centres and to foster a university approach to research and business culture.
Development Financial Institutions in coordination with governments can set up creative and
dynamic programs to help in creating preliminary conditions. Governments must also attempt
to reduce bureaucracy and cumbersome regulations (Avnimelech G. and Teubal M., 2005).
In the pre emergence phase policy makers, governments, MNEs and DFI must be all part of a
common attempt of supporting R&D together with high-tech centres and engineering
universities, thereby fostering advanced education development. Many of the greatest venture
capital successes have had a relationship with research centers and universities.
R&D capabilities have to be directed toward creating new products and services and
consequently new start-up companies. The government, in particular, plays a multi-faceted
role. There is a political level that has the implication in maintaining currency and economic
stability as well as develop a favourable tax and legal system. Attention must be paid to
protect intellectual property and properly regulate the capital market.
This is a time to create a critical mass of start-ups in order to have an effective demand on
venture capital, and therefore a good number of suitable and promising investments.
In the emergence phase the processes which take place are on programs and activities
between public and private sphere. Institutional and private stakeholders are moved to pay
attention on ways to finance innovation and technology business projects.
In this phase the main target is the venture capital industry. Technical supporting institutions
are established and programs launched to leverage positive conditions, accelerate venture
capital demand, company growth, as well as fostering local capabilities. Local investors make
the first move to establish venture capital firms and local managers and entrepreneurs have a
key role in allowing start-ups to survive and grow.
Venture capitalists look for growing industries and high returns that are always linked to high
technology industries or to innovation applied to traditional sectors.
During the development phase processes involve development of relationship between
venture capital firms and entrepreneurs at a broader level: local, regional and international.
Venture capital teams of managers have to be put together leveraging local networks and
knowledge in order to be able to catalyse capital resources available in the region and to
allocate them smartly.

8. 8
In these first phases the size of funds shall not be large enough to lose the focus on small
investment size. If these initial investors and firms build up a good reputation, the funds size
and investment target will increase spontaneously.
Focus has to be in attracting not only capital but also consistent entrepreneurial and technical
know-how. Moreover, during and after venture capital growth (in order to grant a broader
prospective in the process) an extensive category of specialized professionals have to take part
in supporting operations such as attorneys, accountants, tax experts, advisers and consultants.
The consolidation phase sees interaction among all previous actors, in addition to institutional
investors, global professional, and industry associations. Coordination among local and
international actors must be ensured and standardization of contracts, procedures and
guidelines pursued. The strength of the local IPO market and country stock exchange
dynamism is mainly related to late stage venture capital investments and venture capital
industry development rather than earlier stages (Matheson 2005).
Success in consolidation depends on the industry’s capacity to design a new structure and a
new institutional framework promoting broader policies able to enhance the contribution of
high-tech to other non high-tech and traditional sectors and so sustaining demand and capital
raised which become more difficult in time of maturity.
Venture capital firms become more specialized investing in identified industries and targeting
deals strictly for investment size. It could be favourable to have a vertical expansion by
raising a large fund, and thereby developing global venture capital players, with specialized
division that will invest throughout the different stages of development from start-ups, until
expansion and large growth of the companies. Another possibility is for single venture capital
to expand horizontally to new geographic markets, and thereby help to consolidate country
venture capital industry at regional level.
During the consolidation phase crises can arise. In this case, priority should be given to
assuring a minimum level of activity in start-ups, going on targeting innovation. During
critical times government involvement and forms of direct financial support could be a
determining factor in the industry’s survival and therefore helping to overcome the crisis and
reach a stronger consolidation status. Interesting forms of support have been set in place in the
last thirty years by some European government such as Sweden and Norway
(Karaomerlioglu. and Jacobsson, 2000).
Throughout this period, it is mandatory to favour a process of consolidation and strengthening
(or renewing) supporting institutions and programs.

9. 9
Difficulties encountered in implementing policies for encouraging venture capital operations
are due very often to a misunderstanding of an evolutionary nature of the venture capital
industry (Avnimelech G. and M. Teubal 2003). The Israeli success story, as it is also well
shown by the US case, demonstrates very well how venture capital industry development and
start-up formation and growth can be strongly correlated. The enhanced venture capital
activity spurred additional start-ups, and additional start-ups spurred further venture capital
activity. In the US successful start-up founders became venture capital partners as well as
venture capital partners and managers took active role in founding and developing portfolio
companies. This virtuous circle of enhanced capabilities and networking contributed to the
further success of venture capitalists and enhanced value adding services to start-ups
(Avnimelech G., Kenneyt M. and Teubal M., 2007).
What appears to be evident (and better supported with useful elements by the following
paragraph) is that government policies must play a key role during each phase of a venture
capital industry development starting from the background conditions until the consolidation
period. Venture capital policies require adoption of an evolutionary perspective to venture
capital as an industry and a perspective of the venture capital policy framework as a system in
constant evolution.
An Extensive Evolutionary Policy Framework is Crucial
A nascent venture capital industry can be market driven supported by policy or triggered by
policy. This is more the case of emerging countries where both market preliminary conditions
and external supportive programs are weak or absent.
Improving the investment climate by reducing government failures is a necessary but not a
sufficient condition for fostering rapid growth through investment. Market failures also need
to be addressed. The lack of equity capital can be partially attributed to an excessive
perception of high risk and information asymmetry.
Emerging market governments call for contributions recognizing the important role risk
capital can play in broadening the private sector, and should therefore willingly institute the
necessary reforms. On the part of financial institutions the expectation is that they fulfil their
role by sharing risk with private sector counterparts and assisting governments to strengthen
regulatory environments. They should also provide support for creative new approaches to
venture capital investing.

10. 10
Choosing the adequate form of assistance is in general related to individual country
weaknesses and opportunities. In order for a government to be successful it must be able to
assess, and even to influence, the context under which the venture capital policies and
programs will be implemented. However, a good measure is expected to encourage good
investors to provide risk capital to target enterprises, and supporting entrepreneurs, to exploit
in a proper manner the incentives offered.
Considering global trends on venture capital development in the region, and having carried
out empirical country analyses at regulatory level, some recommendations to policy makers
are listed herein.
Recommended Actions for Government Policy Makers to Develop a Venture Capital Industry
Area Actions Recommendations
Investment
Regulations
Equity guarantee schemes
Incentives’ programs to new
investors categories.
Reduce perceived risk and increase motivation
toward excluded area and industry.
Reduce restriction for domestic insurance,
pension funds, universities.
Legal & Tax
Tax reductions and
exemptions
Intellectual property system
Company legislation
Labour regulation
Stock Markets and M&A
Reduce capital gain taxes on VC investments
and consider tax incentives to local and
international investors.
Ensure legal property rights as well a simple
and transparent commercial legislation.
Facilitate and ensure ways of exiting.
Innovation
Business incubators
Start-ups grant programs
Finance R&D institutions
Set up incubators to launch new innovative
products and services.
Sustain start-ups with institutional programs
and R&D centers with substantial resources.
Capital Market
Set up proper laws
Simplified Stock Exchange
procedure
Enforce M&A and securities law.
Ensure transparency and efficiency.
Allow dual list on local and foreign Stock
Exchange.
Source: own elaboration
According to the experience developed in transition economies about venture capital matters,
governments are expected more and more to take actions on several priority matters, hereafter
some recommendations to policy makers:
- Area Investment Regulations – Since the economic landscape in the region is largely
dominated by SMEs and small family enterprises, the country regulatory framework
should consider encouraging venture capital investment focused on this specific company
target. Equity guarantee schemes and programs based on incentives should be designed to
increase investor confidence.

11. 11
Local and regional pension funds and insurance companies can be good prospective
investors having long term liabilities, which gives them both the necessary liquidity and
the ability to absorb risk. Special and suitable measures must be undertaken to bring them
to target and pay more attention to venture capital firms. Alternatively, individual wealth
in the region as well as foundations, universities, and charitable endowments, may be a
substitute for bank or institutional investments. Governments should develop measures to
encourage these individuals and actors. Collective schemes to facilitate retail investment
in venture capital must be developed. Ministries such as the Ministry of Finance, Industry,
Trade can offer government equity guarantees to institutional investors who participate in
(or initiate) local venture capital funds.
- Area Legal and Tax – It is crucial for the development of a local venture capital industry
to mobilize local investors, as well as attract foreign equity (OECD 2006). The most
relevant issues (as has already been stated) include a taxation system, reducing barriers to
entrepreneurship, setting up appropriate regulations, intellectual property, and commercial
legislation, as well as improving access to public stock markets and fostering M&A so as
to improve exit ways for investors.
Tax system
Assessing existing tax and regulatory systems to eliminate unnecessary complexity in tax
treatment of capital is a priority. Some countries have responded to this demand by
providing tax relief for various forms of investment in unlisted companies or companies
listed on second tier of growth exchanges. In this regard, several European countries
(OECD 2006) have recently reduced tax pressure.
It is extremely important to define policy to encourage not only financial investors but
also new target people to become entrepreneurs investing their savings. In this regard here
are listed some significant measures:
o Since venture capitalists depend upon capital gains for their income, the industry
tends to press for low rates of capital gains taxation; reduction or exemption of the
capital gains tax rates for local and foreign investors (in order to encourage venture
capital investments and entrepreneurs) is there for a big priority since taxation of
capital gains has long been pointed to as a driver of both entrepreneurship and
venture capital operations.
o Optimizing all the tax regulations affecting R&D, innovation, and start-ups.
o Providing tax reduction and exemption to encourage students and employees to

12. 12
become entrepreneurs.
o Providing tax incentives to institutional key investors, such as pension fund and
insurance companies.
Legal framework
o Review the intellectual property protection system (to ensure its solidity) and
provide sufficient incentives for innovative activities to exist.
o Provide a simple legislation for establishment of enterprises and venture capital
funds, as well as a transparent regulation for exit of unsuccessful enterprises,
specifying clear insolvency procedures and standards.
o Shareholder rights’ regulation, such as voting rights and timely and reliable
enforcement of shareholder and creditor disputes.
o Promoting sound corporate governance standards in line with the international
consensus, aimed at establishing standardized public disclosure and management
accountability (including accepted accounting practices, independent audits, and
defined responsibilities of boards of directors).
o Improving labour regulations.
Stock Markets and M&A
o A significant number of legal and regulatory changes will need to be implemented
to strengthen local stock exchanges.
o Liberalizing investment restrictions for local institutional investors such as pension
funds, insurance companies, mutual funds and other financial intermediaries.
o Striving for closer co-operation with sister organizations and other development
financial institutions, with the objective of creating a well-functioning network that
promotes effective risk-spreading, and help to secure financing.
- Area Innovation – It is impossible to talk about venture capital emergence and
development without improving a suitable environment for innovation. In this regard,
empirical analyses give evidence of all the attempts made by authorities to
institutionalised programs (such as business incubators) to raise the level of patentable
innovation and innovative start-ups. Experience has demonstrated that venture capital
activity tends to be geographically clustered in areas rich in skilled human capital,
universities and research centres, as well as legal and technical services.

13. 13
Governments should foster innovation and entrepreneurship through business incubators
and facilitating linkages between incubators, R&D institutions, universities and sources of
finances. It is important to create a social and economic climate conducive to the
emergence of high-tech clusters, where innovative enterprises can find an environment in
which to grow and come in contact with promising venture capital firms to finance and
support.
Achieving sufficient results on R&D and innovation capabilities may require, in both
industrialized and emerging economies, long term policy program and relevant financial
resource commitment.
- Area Capital Market – Since capital markets and company listings in stock exchanges is
always one of the main and most consistent ways of exit for venture capital firms, and
given that domestic markets may not be able to accommodate listing, governments should
foster local stock exchange development as well as facilitate domestic companies listings
in overseas markets.
Hereafter are listed some more specific and concrete governmental forms of intervention
which could be launched to increase motivation and facilitate activities of venture capital
investors and venture capital firms:
- Constitution of investment funds (venture capital) in which the state (through a public
institution) is a partner, investor or participant, even if on less advantageous terms than
other investors;
- Grants to venture capital funds to cover part of their administrative and management costs;
- Guarantees impact funds against a portion of investment losses, or guarantees given with
respect to loans to investors/funds for investment risk capital;
- Public lunch programs and set up of alternative institutions to finance seed capital at a very
early stage.
It is not only important to set up far-sighted policies and supportive programs, but to adapt
them carefully to the context and to the right timing concerning phase of development.
Unfavourable background conditions can prevail and, if not taken into account, they might
hamper positive effects.
Finally, it must be said that pressuring governments to take action on all these matters entails
steady risk as this involvement could become too intrusive, thereby stifling real development.

14. 14
Government roles should last for a limited period and any programs and initiatives launched
should always be geared toward increasing numbers and the role of private stakeholders.
Supporting Programs to foster impact capital, between Public and Private
The paper states about the crucial role may have public actors and policy makers to develop
an efficient policy framework, to foster capacity building and education as well as to support
R&D programs and innovative start-ups and small enterprises. The government and public
institutions can have an active and fruitful role in fostering innovation, entrepreneurship, and
business orientation. Attune and effective investment regulations facilitate the emergence of
preliminary conditions and their positive exploitation.
Governments supported by developed financial institutions, multilateral development
agencies and ordinary banks, planning together with other institutional investors such as
pension funds, social responsibility investments organizations, as well as with the support of
specialized professionals and private direct investors can develop specific creative investment
funds and programs, that can directly foster emerging countries efforts to improve investment
climates as well as strategic sectors, industries and geographically critical areas. It is
important to act as a catalyst for first-time risk capital operations, creating the conditions and
confidence for subsequent operations through demonstration effects.
Governments are requested to design and launch concrete programs that could be developed
at country and regional level to make the most of public and private capital.
A creative public and private approach is recommended to foster impact capital industry
emergence. Partnerships between public and private can be an optimum to set up funds well
focused in scope and committed on a long term basis. Public money can be crucial to catalyze
both local and international capital as well as to bring in technical and financial expertise.
Developing funds and programs with public and private capital and know how, strategic
industry and underdeveloped regions can be supported. Government sponsored initiatives can
also easily help micro and small enterprises to access innovative financial instruments
encouraging investors to deal even where environments lack the regulatory requisite and
preliminary conditions.
A public involvement to foster venture capital industry development is welcome but it is
important to recall that the government as facilitator and investor should have the ultimate

15. 15
goal of creating self-sustainable markets. After target goal achievement, public actors are
expected to timely remove their presence.
In order to set up an efficient impact capital industry in an emerging market, it is important to
create conditions and launch a process to facilitate the establishment of more than one impact
fund contemporaneously which can operate as intermediary between the country’s resources
and private corporate counterparts in the industrialized world. Different funds can be set up
according to geography, industry, size, export or local country priority strategies.
Summing up Actions and Activities for the Region
Policy makers must play an important role to ensure successful impact capital industry
development. A complete set of policies must be set in place geared toward the local and
regional conditions that continuously enable the following of changes in circumstances and
market evolution.
Programs should focus on confrontation of specific country system failures and aim at
leveraging positive conditions present in the local context.
A critical factor in the region is the policy makers’ lack of capabilities that should be able to
set priorities and translate them into programs and policies. So assembling high skilled teams
of policy makers, academic consultants, and specialized professionals, is mandatory in order
to undertake analyses about policies implemented in other countries, their effectiveness and
impact.
As learned from empirical analyses, a long-term economic development strategy should be
adopted. Extremely challenging but relevant in emerging markets is to focus upon the
enhancement of innovation capabilities, and the stimulation of entrepreneurship culture.
Therefore, governments should commit resources and all kind of efforts to enhance R&D
programs and projects, as well as creating other favourable conditions.
As a second step, actions must be undertaken to move R&D toward traditional sectors,
facilitating the creation of new products and services. A critical mass of promising start-ups
with a strong focus on social and environmental sustainability is required prior to setting
policies directly focused on impact capital.
At this point policies targeted at directly developing impact capital funds are required. Policy
makers and policies that they design and implement should be aware of the preliminary

16. 16
market and industry needs and should be able--in a proactive way--to identify, bring out, and
direct all these crucial factors to develop impact capital funds in tune with the local context.

17. 17
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presented at the DRUID Summer Conf. 2003, Copenhagen.
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Technion; Science, Technology, Economy program.
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