SNF funds HSG research on growth financing

When start-ups expand their business activities, they often face a financing gap. This can prevent them from expanding internationally, investing in innovation or remaining at their current location. A new research project at the University of St.Gallen (HSG) is investigating the role that so-called “junior stock exchanges” can play in bridging this funding gap. These stock exchange segments are designed to make it easier for younger, smaller and innovative companies to access the public capital market.

The Swiss National Science Foundation (SNSF) is supporting the project “Bridging the Scale-up Funding Gap: The Design, Attractiveness, and Outcomes of Junior Stock Exchange Markets” with approximately 400,000.00 Swiss francs. It will run for a three-year period from January 2027 to December 2029 and includes two PhD positions. The project is led by Prof. Dr Petrit Ademi, assistant professor of Entrepreneurial Finance, and Prof. Dr Dietmar Grichnik, professor of Entrepreneurship and Technology Management, as well as vice-president for Innovation & Quality at HSG.

Financing the scale-up phase

The project focuses on the so-called scale-up phase: the stage of development in which young companies significantly expand their business activities. The funding gap in this phase is also referred to in research as the “second valley of death”. After the initial stages of development, companies often lack the capital for further substantial growth.

Junior stock exchanges are a potential funding route. They are aimed, amongst others, at high-growth start-ups as well as small and medium-sized enterprises. Lower barriers to entry and less stringent admission requirements create the conditions for an earlier initial public offering (IPO). However, little research has yet been conducted into how these markets need to be structured to appeal to start-ups and investors.

Over the past few decades, more than 100 such stock market segments have emerged worldwide in over 50 countries. They have facilitated thousands of IPOs. For example, the Swiss stock exchange SIX launched the “Sparks” segment in 2021. The French AI company LightOn illustrates how such stock exchange segments pave the way for innovative start-ups to access the capital market: it listed on the Euronext Growth junior stock exchange in 2024, marking the first IPO of a generative AI company in Europe.

An overview of IPOs

The HSG project traces the entire journey of start-ups on junior stock exchanges, from the emergence of these market segments right through to the consequences of such IPOs. The researchers are examining how these markets have developed globally and what role they play alongside other financing channels. They are also examining how entrepreneurs assess the attractiveness of such an IPO and what role listing requirements and corporate governance standards play in this. Another key orientation is on how companies present their growth prospects and how retail investors react to such growth narratives. Finally, the study examines how companies perform following their IPO and what implications this has for the start-up ecosystem in their local area.

Guidance for research and practice

The project will demonstrate how the structure of these stock market segments, the decisions made by start-ups and investors, and the longer-term consequences all interact. The results are also intended to provide guidance for policymakers and other stakeholders. The aim is to gain a better understanding of whether, and under what conditions, junior stock exchanges can bridge the funding gap for high-growth start-ups.