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Financing Innovation

December 20, 2013
 

Executive summary

 
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A key approach available to governments when promoting innovation is providing or facilitating finance for innovative enterprises. Despite recent progress in facilitating a genuinely European private financing industry, there are still parts of Europe where enterprises have difficulty accessing appropriate innovation financing. This paper argues that more can be done at member state level to attract and nurture private financing for innovation.

This paper makes recommendations to European states and to the EU that are of relevance both to and beyond the implementation of Horizon 2020, which intends to improve access to finance for innovative companies by using financial instruments to leverage private finance.
 

For European States:

On taxation:
•    R&D tax credits should be used by national governments to encourage innovation.
•    Lower levels of capital gains tax should be put in place for innovative companies.
•    Income tax breaks should be made available for angel investors as a reward for investing in early stage companies

On universities:
•    Governments should promote a cultural norm within university technology transfer offices for a 2% ‘golden share’, whereby universities defer immediate payment for the intellectual property invested in spin-out companies, in favour of 2% of proceeds when the company owner exits.
•    Governments should encourage the adoption of ‘Easy IP’ schemes, where in most cases the university can grant to spin-offs the free use of a new technology developed within the university.

On direct funding:
•    Governments should commit money to provide seed funding where the market fails to do so, in particular to technological platforms and ecosystems capable of generating further innovations. In some cases funding may need to go to strategic individual companies or technologies, but the main emphasis should be on de-risking private investment and playing a convening role in increasing seed and pre-competitive funding.
•    There is a need for arms-length public bodies that provide innovation financing in European states.
•    Governments should provide support mechanisms that help companies and entrepreneurs find existing sources of government money intended to help innovators.

For the EU:
•    The EU should increase spending on innovation in order to be competitive with performance leaders globally.
•    The EU should provide early stage seed capital to fund very early stage, risky innovations that the private sector is not prepared to fund. This innovation funding should be driven by specific missions, with an emphasis on strengthening innovation ecosystems and advancing technology platforms.
•    The EU should develop a European Innovation Council to promote the transfer of outstanding scientific results into commercial applications that address specific missions.

In order to facilitate public innovation support at national level by European states, the EU needs to:
•    Develop programmes that provide particular support to those states with the lowest innovation performance.
•    Develop a European loan guarantee system for high growth companies.
•    Relax EU state aid rules that restrict state input into venture capital funds.
•    Support the evolution of a strong decentralised savings banking system that focusses on investing in the regional economy and building strong ties with regional companies.

 
 Download the position paper