This paper incorporates the process of entrepreneurial …nance into an endogenous growth model with horizontal innovation (Romer, 1990;Jones, 1995b).To capture the market frictions existing in the …nancing of innovation, entrepreneurial …nance is described as a process of "search and matching" between entrepreneurs proposing their innovative ventures and capitalists selecting and …nancing the most valuable projects. We determine the amount of resources devoted to innovation along the balanced growth path. The welfare analysis highlights the sub-optimality of the equilibrium innovative e¤orts due to search and bargaining frictions. We analyze the role of the policy maker to restore the optimality of investments in innovation.