Knowledge Economy Forum IIIGovernment of Hungary & World BankBudapest 23rd-26th March 2004

Stephen Wright

Projects Directorate

(s.wright@eib.org)

Breakout Group B“Financing of Innovation”

PlayersTertiary institutions•Universities•Research institutesCorporates•SME•Midcap•Large domestic•TNC/FDI

FinancingFamilyEquity•Seed/startup/VC•BO/IPO Exit•Stock marketClient downpaymentGrants•EU (FP6, Structural)•NationalTax reliefDebt•Factoring•IFI•National development bank•Commercial bank

ProjectBasic researchApplied R&D•Techno development•Product development•Pilot project•Market entry•Commercialisation

…no single answer!

National innovation capacity framework

Absorptive capacity

R&D supply Diffusion and linkages

Demand (market pull)

Our country case studies:

Many obvious similarities between national programmes – •aimed at international competitiveness of product/process for the country•fostering university-industry relationships•build “R&D infrastructure”•supporting commercialisation in industrial companies•co-financing with the private sector

But differences too –•extent of support available for pre-commercial research •the driver: university research ideas or the market•grants versus debt/guarantees of various kinds•scale – from $1.5 to $500 million

Significant barriers to attracting Innovation finance:

•Limited absorptive capacity (human capital, managerial and organisational capability)•Missing firm-firm and firm-university networks•Poor government R&D finance allocation mechanisms•Lack of innovative SMEs•Limited R&D in FDI sector•Poor IPR systems•Shortage of risk finance (seed/startup/VC/exit) & inappropriateness of bank finance to handle risk

Many of these factors limiting access to finance are NOT in the finance sector as such…

Some solutions to the barriers:

•Build a supportive greater innovation system environment•Use training/consultancy funds alongside R&D finance•Use access to government finance to encourage concentration of research in clusters and networks•Specific financial support linked to young researchers (brain drain)•International peer groups to vet government R&D finance allocation process•Continuous re-evaluation of all government support programmes (“what is working and what is not?”)

These all still need good execution…

Uncertain areas (no good answers from our group apart from aspirations!):

•Encourage FDI to be more than “screwdriver” plants•Development of business angels, VC•Fostering of IPO or other exit markets•Sort out IPR systems to be fully supportive of innovation and give confidence to financiers

Just like most of the EU!And an agenda for the next KBE Forum…