Growing consumer interest in functional foods and nutraceuticals has been seen as a significant business opportunity for the agri-food sector. Many of the new firms in this sector are small and medium sized enterprises (SMEs). These SMEs often face difficulties in obtaining financing for their functional food and nutraceutical innovation activities. We develop and implement two models to show what factors affect a firm's decision to seek external financing and the level of financing obtained. Firm size, being privately held and engaging in contractual arrangements, have negative impacts on the likelihood of a firm seeking external funding, while firms which are intensively involved in the functional food and nutraceutical sector, with greater prospects for business expansion and/or are involved in partnerships are more likely to seek external financing. Larger firms and those involved in functional food and nutraceutical research and development receive a greater amount of capital when they decided to raise capital. However, firms focused on functional foods and nutraceuticals, as opposed to more diversified firms, and those involved in product development and concept scale-up receive less capital. Our findings highlight the importance of public support in addressing the capital requirements of functional food and nutraceutical firms and underscore the considerable burden in this respect borne by smaller sized firms.


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