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New Results in Early Entrepreneurship
study in Russia, CEE and BRIC
L. Mulukova, Е. Murzacheva, J. Filatova
Moscow 2009
Small business financing:
Russia and countries of
Central and Eastern Europe, 2006
Ekaterina Murzacheva
Moscow
2009
Financial strategy of nascent entrepreneurs
Nascent entrepreneur
Numerical characteristics, sources, motives,
experience,
perception
GEM database and methodology opportunities
Descriptive
analysis
Financial
structure
Start-up/Own capital
Payback amount
Payback time
3
Factor analysis
Self-financing
Informal capital
Formal capital
Expected returns
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
The structure of financial sources:
upper bound, 5% significance level
Percentage of early entrepreneurs:
demand
Percentage of informal
investors: supply
Self-fin.
50%
40%
Gov. pr.
Family
30%
20%
10%
Friend
Family
70%
60%
50%
40%
30%
20%
10%
0%
Coll.
0%
Banks
Coll.
Bus. Ang.
4
Friend
Strang.
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Factors influencing the early
entrepreneurs’ choice of funding structure
Hypothesis 1
Scale effect
Financial expansion of the early business
depends on both internal motivation and
financing opportunities
Hypothesis 2
Efficiency
effect
Early entrepreneurs‘ expectations about future
returns are influenced by internal perception and
financing opportunities
Hypothesis 3
Global effect
5
The prevalence of informal investments in the
economy characterizes the socio-economic
development of a nation
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Empirical evidence (2006)
Scale effect:
Efficiency effect:
Ordinal scale used:
Test quality:
Scale effect
Efficiency effect
6
the amount of start-up capital is a dependent
variable
the expected returns on the invested capital is a
dependent variable
contingency Kendall criterion
the level of significance is in brackets
•Russia
•Hungary
•Slovenia
•Germany
•Latvia
•Czech Republic
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Informal investors among
adult population, %
The influence of GDP per capita on the supply
of informal funds in countries-GEM participants (2006)
25%
Y=0,077-3,5328E-06X+ 5,6873E-11X2
20%
R2=0,247
15%
10%
5%
0%
0
10000
GDP per
Sample distribution
7
20000
30000
40000
50000
60000
capita
(real
prices, $)
Adjusted
regression
Estimated regression
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Summary
• Low expected returns are often combined with prevalence of informal financial
sources
• Type of prevailing financial source determines the amount of start-up capital
attracted: scale effect
• Expected returns are connected with the self-assessment of own abilities
But: the results differ among various countries:
• In case of countries with weak formal financial system informal investments
substitute unavailable and/or unstable formal sources (India, China, Russia,
Slovenia)
• In case of countries with sound formal financial system the rate of informal
supply is low (Germany, UK, Japan)
• GDP higher than average is combined with a higher role of informal funding
(Iceland, USA, Ireland, Norway) – not a loss of trust in formal credit
institutions but high importance of social networks enables access to
start-up funding in richer societies
8
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Further prospective of the research
What is the sense behind excessive informal financing?
1.
2.
3.
4.
Informal support absorbs non-demanded business risk in the economy
The lack of the quality control and as a result credit risk concentration
Evaluation: Basel Committee on banking Supervision – IRB advanced methodology
Results: maximum share of the GDP needed to cover risks caused by entrepreneurial
activity in order to make the economy more sustainable to systematic fluctuations
% of GDP (USD, PPP)
2.50%
9
2.00%
1.50%
1.00%
0.50%
0.00%
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
The Phenomenon of
Parallel Entrepreneurship
in Russia, CEE and BRIC
Julia Filatova
Moscow
2009
Definitions
Two types of entrepreneurs mentioned in the literature:
 Serial entrepreneurs - those who go through the successive
stages of starting, developing, and closing a venture, and then
move on to float a new venture.
 Parallel (portfolio) entrepreneurs – those
/managing more than one company at any one time.
owing
Parallel entrepreneurship characteristics:
• Executive decisions decentralization;
• Risk diversification;
• Umbrella structure.
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New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Level of Parallel Entrepreneurship:
GEM Data, 2006
60%
Level of parallel entrepreneurship in Russia – 22%.
Peru
50%
Indonesia
Level of parallel entrepreneurs
Philippines
China
40%
Colombia
Jamaica
Thailand
Finland
Australia
Malaysia
US
Ireland
Netherlands
Brazil Japan
Iceland
Norway
Turkey
Croatia
Greece
Chile
Germany
Spain
30%
South Africa
Argentina
Canada
Slovenia
20%
Czech Republic
Belgium
Sweden
Italy
Mexico
United Arab Emirates
France
10%
Denmark
Hungary
Latvia
Uruguay
India
Russia
United Kingdom
Singapore
0%
0
5
10
15
20
25
30
35
40
45
Countries
12
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Comparison of parallel entrepreneurs with
novice entrepreneurs
Differences between parallel entrepreneurs and novice entrepreneurs
Higher share of
external financial
sources
Older
Better educated
Psychologic
motivation >
economic
Higher level of human
capital
PE:
Higher level of social
capital
Higher estimation of
social environment
13
Higher level of
adaptation
Higher estimation of
entrepreneurial
environment
Higher level of selfesteem
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Business strategies of parallel
entrepreneurs
RUSSIA
•Business activities:
Wholesale and retail trade (40%),
Personal/consumer service activities (18%),
Transport and communications (13%).
•Average number of co-owners: 3 persons.
•Average number of employees: 5 workers.
•Estimated business growth: 1,8 times.
•Non-innovation business orientation.
•Low export potential.
•Financial recourses shortage 
•High integration into entrepreneurial networks.
14
INDIA
•Business activities:
Retail trade, hotels & restaurants (51%),
Agriculture, hunting, fishing (11%),
Manufacturing (9%).
Average number of co-owners: 1 person.
•Average number of employees: 13 workers.
•Estimated business growth: 1,9 times.
•Rather innovation business orientation.
•Rather low export potential.
•Financial recourses shortage 
•High integration into entrepreneurial networks.
BRAZIL
•Business activities:
Retail trade, hotels & restaurants (21%)
Wholesale trade (21%),
Manufacturing (19%).
Average number of co-owners: 1 person.
•Average number of employees: 2 workers.
•Estimated business growth: 2,6 times.
•Non-innovation business orientation.
•Low export potential.
•No financial recourses shortage.
•Rather low integration into entrepreneurial networks.
CHINA
•Business activities:
Retail trade, hotels & restaurants (43%),
Manufacturing (19%),
Personal/consumer service activities (13%).
Average number of co-owners: 3 persons.
•Average number of employees: 18 workers.
•Estimated business growth: 4,5 times.
•Non-innovation business orientation.
•Rather low export potential.
•No financial recourses shortage.
•High integration into entrepreneurial networks.
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Business strategies of parallel
entrepreneurs
Network business forming strategies:

Existing business transfer to a new legal platform (50%)

Businesses are coincide by the type of business activity BUT there are
distinctions at the particular sphere (9%)
Necessity based strategy: administrative barriers and business instability
overcoming

New business supplement with the existing one (27%)
Strategy of fastening in the market niche

Businesses are not connected with each other (14%)
Strategy of maximum risk diversification OR strategy of personal preferences
realization
15
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Reasons for parallel entrepreneurship
Possible reasons for parallel entrepreneurship in Russia:
Heterogeneous structure of parallel entrepreneurs
Opportunity based factors:
Necessity based factors:
Personal features - strongly expressed
«entrepreneurial spirit»,
Administrative barriers pressure,
Resource security: sufficient amount of
social and human capitals.
Business and personal risks diversification
strategy in conditions of environmental
instability.
Possible reasons for parallel entrepreneurship in other countries:
Financial benefits (to gain benefits from the
start-up status),
Tax minimizing strategy,
Growth-oriented behavior (using of social
and economic capital and networks of already
existing business to establish a new venture).
Tacit growth strategy in the situation of
high risks of vertical growth (pressure of
bigger firms dominating
the market, high taxes, etc.).
16
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Summary
The parallel entrepreneurs identified during the APS
2006-2008 in Russia are mainly self-employees and
owners of micro-business.
Entrepreneurial group with high growth potential from
the point of social and human capitals.
BUT
Entrepreneurial group with low growth potential from
the point of structure of financing sources and
innovation orientation.
17
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Team entrepreneurship in Russia,
Eastern Europe and BRIC:
some evidences of GEM 2006-2008
Linara Mulukova
2nd
Moscow
year of MSc Applied Methods of Social Analysis of Markets Programme
2009
Team entrepreneurship
Team entrepreneurship - conducting or starting a business
jointly with partners, sharing ownership with them.
Team entrepreneurship is one of the means of risk
diversification and fundraising, raising capital of different
forms (economic, social, human, etc.).
Possible reasons for running business collectively:
- entry barriers
- absence of support infrastructure
- highly developed social networks
- cultural and historical prerequisites
19
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Team entrepreneurship in Russia
Team entrepreneurship rate, 2006-2008
57%
43%
Team
Individual
Team entrepreneurs vs individual ones:
- younger (means - 33 vs 37, medians – 31 vs 38)
- opportunity-based (38% vs 1% - opportunity (have job) and 9% vs 45% - necessity
(+opportunity))
- more favourably assess regional conditions for business start-up (44% vs 31%)
- less working full time (50% vs 73%), more retired and students
- more nascent entrepreneurs (65% vs 28%)
- less new and established owners (23% and 19% respectively vs 44% and 34%)
20
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Dynamics of team entrepreneurship
in Russia
100%
90%
80%
70%
63,7%
55,1%
60%
48,2%
50%
40%
30%
20%
10%
0%
2006
21
2007
2008
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Team entrepreneurship in Russia, EE and
BRIC countries
Eastern Europe
Top-5 countries:
Iceland (70%)
United Arab Emirates (68%)
France (66%)
Russia (64%)
Belgium (60%)
70%
63,7%
57,1%
60%
52,9%
50%
40%
30%
20%
10%
0%
Russia
Czech
Republic
Hungary
BRIC
Bottom-6 countries:
Jamaica (26%)
Brazil (27%)
Indonesia (30%)
Philippines (32%)
Japan (34%)
Thailand (35%)
70%
63,7%
60%
50%
37,2%
40%
26,6%
30%
20%
10%
0%
Russia
22
59,0%
India
China
Brazil
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Team entrepreneurship in Russia and EE and
BRIC countries
Russia
less think that “successful new business leads to high level of status and
respect”; more nascent entrepreneurs, less owners of functioning business
Eastern Europe
Czech Republic – more business angels; more think that “there are lots of
good opportunities for starting a business”; more think that “starting a new
business is a good career choice”; less work full time, more retired and
students; more nascent, less established entrepreneurs
Hungary – more have required knowledge and skills; more nascent, less
established
23
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Team entrepreneurship in Russia and EE
and BRIC countries
Russia
less think that “successful new business leads to high level of status and
respect”; more nascent entrepreneurs, less owners of functioning business
BRIC
India – more female; more have negative business experience; less have
required skills; less work full time, more homemakers; lower income; lower
level of education; more not working; more nascent entrepreneurs, less
owners of functioning business
China – less have negative business experience; less have required skills;
less think that “people prefer uniform living standard’; less think that
“starting a new business is a good career choice”; less work full time, more
work part time or homemakers; higher income; higher level of education;
more not working; more nascent, less established entrepreneurs
Brazil – more know other entrepreneurs; more think that “there are lots of
good opportunities for starting a business”, that “people prefer uniform living
standard”; higher income; higher level of education; more nascent, less
established entrepreneurs
24
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Team entrepreneurship in Russia and EE
and BRIC countries
Russia 2006:
Nascent entrepreneur “+”
66,1% matches
Russia 2006-2008:
2007, 2008 “-”
Age “-”
Owner of a business (new or established) “-”
71,2% matches
Eastern Europe 2006:
65,8% matches
Age “-”
Agrees that “Starting new business is a good career choice” “+”
Owner of a business (new or established) “-”
25
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Team entrepreneurship in Russia and EE
and BRIC countries
BRIC with Russia 2006:
75,8% matches
Brazil, China, India “-”
Age “-”
Has knowledge and skills to do a start-up “-”
Agrees that “People prefer uniform living standard” “+”
Higher levels of education “+”
BRIC without Russia 2006:
Age “-”
Expects to do a start-up in 3 years “+”
Shut down business in past 12 months “-”
Has knowledge and skills to do a start-up “-”
Higher levels of education “+”
26
76,3% matches
New Results in Early Entrepreneurship study in Russia, CEE and BRIC
Thank you for your kind attention!