How Can Government Policies Stimulate Entrepreneurship?
The primary law on secured transactions in Armenia is the Civil Code, 1998. In addition, the Law on Registration of Property Rights, 1999, provides for the registration of security interests in immovable property. Registration of security interests in certain types of movable property is covered by other, more specific laws.3 In general, the secured transactions regime in Armenia is reasonably effective as regards immovable property but weak with regard to movable property. In Armenia a security interest created in immovable property must be perfected through registration. Not all security interests in movable property are required to be registered—only charges over intellectual property, motor vehicles, and agricultural equipment. However, because registration gives a creditor priority over unregistered and unsecured creditors, it is worthwhile to register pledges on other movable property, though the registry cannot be considered an accurate source of other pledges that may encumber the property. Security interests in all types of movable property should be allowed to be registered, and an electronically searchable collateral registry should be created for both movable and immovable assets. The registry should be authoritative—that is, parties should not be able to circumvent registry priority.
Access to Risk Capital Armenia has a large proportion of knowledge-intensive startups, which have historically been a major source of innovations and job growth in the industrial world. These startups are responsible for an outsized share of innovation in developed economies compared with their small size and relative weight in research and in the economy as a whole. Though they have the potential to be highly successful, they also have a high rate of failure and are thus considered high-risk investments. Given the risks associated with these startups, it is rare to find one investor who will fund a new startup from beginning to end. Some corporations do this internally with new startups that are wholly owned by the corporation, but for individual entrepreneurs and small startups, new funding comes in stages. Entrepreneurs are also not limited to one type of funding. Some firms will mix and match equity and debt-based financing at different stages of development. Each step in developing a new product—from idea, to research, to prototype, to a marketable product—requires larger amounts of capital, which programs developed by the Small and Medium Enterprises Development National Centre of Armenia cannot fund. The initial funds for the very early stages of developing a concept into a business (known as the seed stage) will likely come from an individual’s own finances or from a group of closely related people. To get beyond the seed stage, entrepreneurs require outside investors who are willing to make small investments in volatile early-stage companies. In most cases these investments come from wealthy individuals known as angel investors, who invest a small percentage of their wealth in high-risk ventures. Should the company prove successful, some angel investors will continue to fund it in the postseed startup stage. Once funding requirements reach the $1 million–$2 million stage, the investments start to Fostering Entrepreneurship in Armenia • http://dx.doi.org/10.1596/978-1-4648-0064-1
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