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Finance for innovation and growth

Finance for innovation and growth. UNECE Helsinki, 3 June 2010 Vesa Vanhanen. Basic assumptions. High-growth firms need equity Finance for innovative firms should be demand driven Europe needs a better venture capital market

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Finance for innovation and growth

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  1. Finance for innovation and growth • UNECE • Helsinki, 3 June 2010 • Vesa Vanhanen

  2. Basic assumptions • High-growth firms need equity • Finance for innovative firms should be demand driven • Europe needs a better venture capital market • But problems exist throughout the financing chain both on supply and demand sides • Public actions should focus on the worst problems and work with the markets • Actions are needed both on rules and regulations, and on financing firms

  3. Finance for growth Q20: If you need external financing to realise your growth ambitions, what type of external financing would you prefer most?

  4. Pre-seed, knowledge transfer Seed Early-stage Expansion IPO, strategic investors Stock markets, banks REVENUE R&D funding, public grants Entrepreneur, family, friends, business angels, public sources Venture capital funds Further rounds 3rd round 2nd round Setting up a company Breakeven point 1st round Valley of death TIME Problems on the supply side Serious lack of private early-stage investors Too many small illiquid growth stock markets Not enough seed investors VC market fragmented along national lines Graph adapted from Cardullo: Technological entrepreneurism. Note that there are no agreed and fast definitions for most of the concepts used in SME finance.

  5. Research and innovation New knowledge and ideas Grants New unanticipated applications Specific application of knowledge, prototypes Basic research Applied research Products, goods, services Feedback: search for new ideas to solve problems Development Feedback: new product or service characteristics Commercialisation Commercialisation Feedback: market signals and technical challenges Equity, loans Research funding Knowledge transfer Seed and start-up finance

  6. Europe 2020 Financial instruments 2014-2020 “Designing new financing instruments, in particular in cooperation with the EIB/EIF and the private sector, responding to hitherto unfulfilled needs by businesses. As part of the forthcoming research and innovation plan, the Commission will coordinate an initiative with the EIB/EIF to raise additional capital for funding innovative and growing businesses.” European venture capital market “Making an efficient European venture capital market a reality, thereby greatly facilitating direct business access to capital markets and exploiting incentives for private sector funds that make financing available for start-up companies, and for innovative SMEs.” Better business environment “To improve business environment, especially for SMEs, including […] improving affordable access to finance”

  7. Improving financing • Start-up finance: equity, mezzanine, guarantees • Venture capital for growth • Loans or mezzanine capital for innovation • Guarantees for loans or mezzanine capital

  8. Improving venture capital markets • Reduce market fragmentation • Remove regulatory obstacles • Review progress in taxation • Facilitate the growth of firms • Strengthen deal matching and management

  9. Where to find more information? SME portal:ec.europa.eu/small-business/ More about CIP financial instruments:www.access2finance.eu More about EIB lending: www.eib.europa.eu More about EU contracts and grants:ec.europa.eu/contracts_grants/ Advice, services: ec.europa.eu/enterprise-europe-network/ Your Europe for business:ec.europa.eu/youreurope/business European policy on access to finance: ec.europa.eu/enterprise/policies/finance/ European policy on innovation: ec.europa.eu/enterprise/policies/innovation/ Contact: entr-finance-sme@ec.europa.eu

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