Risks of funding innovation in public policies

Purpose While the financing sources available in the market do not provide sufficient financial support for the establishment of companies with high innovative impact, the public sector financing sources play an effective role in granting non-reimbursable resources to these companies, especially during the initial phases that involve greater risks in innovation. This study aims to construct a risk estimation model for subsidized financing of innovation-promoting organizations in emerging economy countries. Design/methodology/approach A database was used with historical data of 77 projects submitted to public notices to promote innovation from a promoting organization. The analyses were conducted using the technique of discriminant analysis and three risk models were considered in the analysis. Findings It was evident that, the more the benefited project teams have high academic qualification (Human Capital) and the more these same teams are socially integrated within a closed cohesive structure (Clustering Social Capital), greater are its innovative qualities and lower are the levels of technological and management risk associated with the economic subsidy program. This study demonstrates that a risk prediction tool can contribute to the local economic subsidy program by signaling the need for actions to be taken during the project selection phase for funding. Originality/value The main contribution of this paper is the proposal and construction of an important tool for use in risk perception and aid in fund decision-making public financing for business innovation projects, proposing a risk management tool with a reasonable degree of assertiveness.