This report is the final report in the framework project "Is Sweden (and the EU) a favorable environment for high-growth firms?” The report is a follow-up and deepening of the report "Fast-growing firms - growth trajectories and driving forces" (PM2024:06) and continues our exploration of machine learning methods to understand and describe firm growth.

Summary

High-growth firms are often attributed a large and central role in economic growth and development. However, it is very difficult to predict which companies will actually grow quickly, partly because the group of high-growth firms is very heterogeneous. Fastgrowing companies can be found in all parts of the economy, and they grow in different ways. In order to understand, explain, predict and, from the government's side, support rapid business growth, we therefore need to better understand the variation within the group of high-growth firms.

The purpose is exploring methods and growth processes

The main purpose of the study is to explore the value of cluster analysis in the field of rapid business growth. Our first goal is to use cluster analysis to identify a set of common growth patterns that may be interesting to explore further in future analysis and research. Our second goal is to investigate whether the cluster analysis facilitates prediction of how companies grow based on the context in which they operate.

A secondary purpose is to contribute to an increased understanding of growth processes that can form the basis for future development and re-examination of policies for highgrowth firms. Our third goal is therefore to make visible and explore differences and similarities in how companies grow in Sweden. This includes contributing an overview of the role of the public support system, alongside private financiers, in financing the growth trajectories of Swedish companies.

In this report, we focus on two types of risk-taking that are the inevitable downside of rapid business growth; investment and new financing. A focus on risk helps us describe and ultimately understand differences and similarities within the group of companies that have chosen to dare to grow. We also follow the development of firm productivity during the growth periods as a measure of how much the firms focus on productivity now or opportunities later.

In the report, we are therefore guided by two questions:

1. Are there commonly recurring combinations - clusters - of financing, investments and productivity development among rapidly growing Swedish companies?
2. What characterizes the starting point for companies that grow in different ways?

Five types of fast-growing companies

We have found that companies' investment, financing and productivity development during the growth period co-vary in complex ways. A relatively small number of clusters (five) can describe the population of fast-growing companies better than many times more clusters. The clustering of how companies grow also helps us predict certain aspects of growth that are otherwise difficult to predict. This suggests that the population of high-growth firms can be usefully described as distinct clusters.

We find fast-growing companies throughout the economy, but they are clearly most common in metropolitan regions and the service sector. Where companies are headquartered, and specifically whether they are in sparsely populated or metropolitan regions, is surprisingly unrelated to how they grow. There are of course fewer firms who start and succeed in growth journeys in sparser regions. If and when they do grow, however, they behave equally and have a similar development in terms of, for example, the number of new employees and productivity, which is positive from a regional cohesion perspective.

Companies mix financing

According to our data, most fast-growing companies finance their growth mainly through reinvested profits. If smaller companies need to raise large amounts of financing, they mainly turn to private lenders. Public grants and loans, when companies receive them, often represent a very significant amount per employee, not least because these sources of funding mainly go to smaller companies (in accordance with state aid rules). Companies that need to raise large amounts of financing otherwise do so with the help of new issues.

How companies finance their growth and the state's role in this is of central interest and an area where we have succeeded in producing a more complete picture than what existed before. A picture that includes both public loans and grants as well as internal and external private financing. By focusing on the costs and risks of public funding, we were able to fold it into, and complement, the pecking order theory. This supplemented theory could advantageously be explored more closely in future studies.

We find a distinct cluster of companies that are characterized by raising large amounts of funding per employee, usually via issuing shares, without making corresponding investments in physical capital. A potential explanation for this is that they make large investments in intangible or human capital, beyond what our data can capture.

Future studies should explore heterogeneous effects

The cluster analysis in this study opens up several interesting future research avenues. In part, it would be of great interest to follow up the long-term outcomes for fast-growing companies, divided according to how they grow. If the trip itself plays a major role for the destination, it may become relevant to direct political efforts to particularly facilitate or enable certain types of growth trips. In addition, it may be easier to target policy efforts to increase growth if distinct subcategories of potential high-growth firms can be targeted.