Conceptual model of Ukrainian industrial facilities funding with venture capital

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UDC 336.647.648

CONCEPTUAL MODEL OF UKRAINIAN INDUSTRIAL FACILITIES FUNDING WITH VENTURE CAPITAL

Derykolenko О.M., Sumy State University.

SWOT-analysis carried out for industrial facilities being subjects of venture activity investment environment allowed to distinguish benefits and burdens of each of them, which can be used when targeting investors at various stages of venture project implementation. Analyzed scheme of relationships between investor and venture company made it possible to identify major features of the conceptual model of industrial facilities funding with venture capital. Conceptual model of industrial facilities venture capital funding has been offered considering domestic particularities of the process.

Key words: venture, industrial facilities, investments, venture capital financing, SWOT-analysis, model.

Анотація

КОНЦЕПТУАЛЬНА МОДЕЛЬ ВЕНЧУРНОГО ФІНАНСУВАННЯ ПРОМИСЛОВИХ ПІДПРИЄМСТВ УКРАЇНИ

Дериколенко О.М.. Сумський державний університет.

Проведений SWOT-аналіз суб'єктів інвестиційного середовища венчурної діяльності промислових підприємств дав змогу виокремити переваги і недоліки кожного з них, що може бути використане під час вибору інвесторів на різних етапах упровадження венчурного проекту. Проаналізована схема взаємозв'язків між інвестором і венчурним підприємством дала змогу визначити основні особливості концептуальної моделі венчурного фінансування промислових підприємств. Запропоновано концептуальну модель венчурного фінансування промислових підприємств, що враховує вітчизняні особливості цього процесу.

Ключові слова: венчурна діяльність, промислові підприємства, інвестиції, венчурне фінансування, SWOT-аналіз, модель.

Резюме

КОНЦЕПТУАЛЬНАЯ МОДЕЛЬ ВЕНЧУРНОГО ФИНАНСИРОВАНИЯ ПРОМЫШЛЕННЫХ ПРЕДПРИЯТИЙ УКРАИНЫ

Thus, Yershova G.V. [1, p. 12 ] in her thesis research analyzes the roles of development institutions in industrial facilities' capital assets capital investment and puts forward additional arguments in favor of expediency to establish strong bank of development to support facilities (in particular industrial ones) based on one of the state owned banks and forward state investment resources into economics through it.

Popov S.F. [2, p. 7]notes that the analysis of potential and diverse sources of knowledge-intensive technologies commercialization and transfer funding indicates the potential of venture capital funding methods to ensure market entry of technologies developed in Institution of Higher Education/ Scientific Research Institute at the expense of state budget.

Shylo L.A. [3, c. 5] analyzed iron and steel works venture capital funding and stated that it stimulates innovative process not only through new machinery and process introduction to manufacture. Innovative sphere effectiveness facilitation and capital stock cheapening based on that compared to the other types of manufacturing resource is also of major importance.

However, investments to venture projects stand out by their nature and mechanisms. Various aspects of venture capital funding have been researched by the following scientists: Vasylyeva T.A., [4]Koret- ska-Garmash V.O. [5], Matey V.V. [6], Taradayko D.O. [7], Yanchenko Z.B. [8]and others.

In particular, Vasykyeva T.A. identified general directions and financial mechanisms of state and banks relationship transformation under conditions of countrywide program of venture business development in Ukraine [4]; Matey V.V. investigated financial and organizational arrangement of venture capital market development in Ukraine [6].

Outstanding issues which are considered in the present paper and are the part of general problem. Key feature distinguishing industrial facilities' venture from other kinds of business activities (in the first instance innovative one) is its investment pattern. In such a way manufacturers introducing venture are forced to spent a lot of time searching for funds (from traditional bank loans, state programs, venture funds and accelerators to crowdfunding) with zero result, this requires research and special funding pattern creation.

Setting objectives of the paper. Paper objective is to develop and substantiate conceptual model of industrial facilities funding with venture capital.

Presenting major data subject to study with complete grounding of scientific research findings

Venture investment environment subjects, both domestic and foreign, have powerful financial (not merely financial) capabilities, yet deliver them into the fields ensuring the biggest and fastest payoff (information and communication technologies, agrarian business, food technologies), and play it safe avoiding investments to the industry.

Yabchenko Z.B. [8] stated that that venture investment is specific variety of financial investments into high-tech production, money making opportunity in which boarders on high risk. Due to this fact, the effective activity of venture funds being critically important for financial support of innovative and investment projects in Ukraine is impossible without state participation.

Venture capital use practice chops and changes, however specific intellectual, information and institutional-legal environment creation for innovative projects implementation within venture capital funding framework is indisputable [7, p. 9].

To support this idea, the following functions of venture capital detailed by Matey V.V. can be provided: innovative, business initiative stimulating, hi-tech industrial facilities establishment facilitating, economic growth support, filling the gap in small and mid-size business funding [6, p. 4].

Situation when against the background of protracted economic recession, political instability and unfavorable conditions for business activities intense interest of foreign capital to Ukrainian projects is observed is explained by their ingenuity and commercial attractiveness.

Koretska-Garmash V.O. [5, p. 8] noted such features attributable to venture capital funding into machine building facilities only:

- long term of funds investment;

- old-fashioned technical facilities;

- diverse technical support due to the variety of production processes used;

- high level of manufacturing facilities cooperation in the industry branch being the result of specialization profiles formed in the soviet economy period;

- the majority of machine building companies are not state-owned;

- low competitiveness level between machine building companies;

- slow moving market of product where long-term relationships between consumers and supplies have been created;

- threat to Ukrainian machine building industrial facilities operation from foreign machine building facilities;

- possibility to provide maintenance by domestic machine building facilities;

- production means manufacture for the other branches of the national economy featured with long lifetime.

Generally venture activity funding issues are connected with:

- inaccessibility of overwhelming majority of available sources of funding;

- financial restrictions which are the most common trouble for small and mid-size industrial facilities (even payment delay is a threat).

These problems can be partially solved with comprehensive approach and funds rising from various sources, e.g. grant getting or rational approach to available resources.

Let us analyze the specific features of venture activity investment environment subjects to find out possibility of their engagement by industrial facilities. We shall take SWOT-analysis method as the basis for our analysis. SWOT-analysis provides for factor analysis of strong and weak points as well as well as capabilities and threats to the facility subject to consideration. Taking into account big number of factors and their nonlinear effect, let us identify three most valuable factors in each category. Venture activity investment environment subjects SWOT-analysis fragment is given in the Table 1.

Based on the results of analysis performed, we can note that each of the possible investors of venture activity has its advantages and disadvantages which shall be considered to use them in the most efficient way.

Basic feature of venture activity distinguishing it from traditional innovative or investment activities is specific pattern of funding. It involves unique interrelations, which do not occur in uncontrolled manner, but clearly defined and regulated. venture investment industrial swot

As a rule, dynamic and growth companies are subject to investment. They demonstrate high potential and require additional funds to introduce technological innovations, which in their turn will allow to raise company rating at the market [9].

Any system is affected by factors (making both inside and outside impact). Venture activity is not an exception. Traditionally scientists divide impact factors into the groups: objective /judgmental, direct/indirect, controlled/uncontrolled, etc. To our opinion this division shall be added with the following groups: variable/permanent (within an established period of time). Such classification criterion will allow businessmen to account for changes taking place in the environment and have an impact on specific innovative project implementation with no need to repeat the whole analysis procedure of macro-environment effect on the project.

In case venture activity is contemplated from innovating company positions, major risk factors faced by such company are as follows (Fig. 1):

- innovative-investment project itself,

- all variable factors of macro-environment (due to their permanent uncertainty),

- terms of agreement with investor (due to impossibility to completely insure it).

International practice does not have an experience of complete venture insurance in classical meaning of this term. The following insurance types are used to mitigate the risks [9]: property risk insurance (in particular of innovative companies being venture capital funding objects), top managers' life insurance, liability insurance and other classic types of insurance.

Global experience shows that insurance is mandatory to obtain funding for industrial facility.

In case venture activity is contemplated from investor positions, major risk factors faced by him/it are as follows: innovative-investment project selection, innovative industrial facility selection to implement such a project (first of all, management of the industrial facility furnishing project implementation guarantees), terms of agreement with industrial facility.

Investor withdrawal from the project is possible at various stages: IPO (from English Initial Public Offering) - initial public sale of private company shares; Internal redemption of stock; take-over; sale to strategic investor; winding-up.

Project selection by the company and investor is affected by a number of parameters which need to coincide: amount of venture capital connected with project cost; company micro environment factors and its resources determine technical capabilities to implement the project; investor micro environment factors are restricting when project is evaluated by profitability indicators, payback period, riskiness, etc.; market situation factors (prognostic demand level, market places and channels, availability of substitute/me-too commodities, etc.).

Various subjects can act as venture investors. Sources of venture capital (in compliance with the list [10]) can comprise as follows: free financial resources of pension foundations, charity funds; government institutions; corporate venture capital; private investors; small business investment companies; foreign investors; banks; insurance companies; profit of venture funds reinvested to innovative projects.

Considering the specific features of business in Ukraine and all aspects of venture, it is fair to say that in general venture funding model is not fundamentally different from the models recognized all over the world, however it has its own unique features (connected with low level of the local manufacturing facilities development, overregulation of business activities, high level of taxation, high level of risks, etc.). Conceptual model of Ukrainian industrial facilities funding with venture capital in graphic form is given in the Fig. 2. investor's available business portfolio (including multidirectionality of the projects)

Fig. 2. Conceptual model of Ukrainian industrial facilities' funding with venture capital

Findings of the present research and future developments in the field

Summing up the results of performed research, let us state as follows:

- SWOT-analysis carried out for industrial facilities being subjects of venture activity investment environment allowed to distinguish benefits and burdens of each of them, which can be used when targeting investors at various stages of venture project implementation;

- it was proposed to add the division of venture activity impact factors with the following groups: variable/permanent (for specified time period), which will allow businessmen to account for changes taking place in external environment and affect specific innovative project implementation, without the necessity to repeat complete procedure of macro environmental impact to the project analysis;

- investor to venture company interrelation pattern has been analyzed allowing to identify basic features of conceptual model of industrial facilities funding with venture capital;

- proposed conceptual model of industrial facilities funding with venture capital takes into consideration domestic specifics of the process.

The results of this research can be used in the practical activities of domestic manufacturing facilities dealing with ventures, as well as taken as a basis for further research and development activities in particular in view of industrial facilities' venture activity procedure development.

References

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