A lack of breadth and depth of financial institutions and markets can inhibit the financing of innovative projects by small firms. Again, the United States appears to have an advantage in this regard relative to Europe and Japan.
In particular, venture capital markets here are both more developed and more geared to financing higher-risk projects, mainly in technology-based sectors by start-ups with prospects of rapid growth. Furthermore, the range of investors is wide and includes pension funds, insurance companies and even private individuals. In contrast, in Europe, venture capital is geared towards more mainstream projects and banks dominate lending.