1. Bridging the R&I financing gap

1.1 From Research Lab to market and private funding

1.2 The private funding ecosystem: seed, early stage and venture capital

market

1.3 Preparation of research projects and companies

2 - The role of ICT Finance Marketplace/ ACCESS ICT in promoting the

investment readiness of EU funded R&I projects

ICT FINANCE MARKETPLACE - BRIDGING THE R&I FINANCING GAP

Training delivered by EBAN on Behalf of the ACCESS ICT project

AGENDA – April 7th, 2011; 10:00

1. Bridging the R&I financing gap

Claire Munck

Diagnosis

• Over 2000 ICT R&D projects are supported by the European Commission through its 7th R&D ICT framework programme, with a budget of €9.1bn.

• The ICT framework covers a range of different ICT areas from digital content to programming; network and telecom services; smart devices and mobile apps; robotics; distribution and ICT services etc.

• Yet of all these R&D projects supported by EU finance only a small number go on to

• commercialise the results and successfully spin out a viable business and go on to attract finance and capitalize on the EC investment.

• Many potentially very exciting new technologies, products and services never get to the market place and never get to the equity community.

1. Bridging the R&I financing gap

Diagnosis

1. Bridging the R&I financing gap

Are all of these ICT R&D projects too risky for early stage investment through angels or VCs?No!

Key issues:

-Lack of investment readiness: Understanding of investor requirements

-Importance of the management team and intellectual property

1. Bridging the R&I financing gap

7.41 % of the EU Budget will be devoted to research and innovation in 2013

GREEN PAPER: From Challenges to Opportunities: Towards a Common Strategic Framework for EU Research and Innovation funding

1.1 From Research Lab to market and private funding

Miguel Trujillo

So, we are in the Innovation Economy• Innovation economics claims that knowledge, technological change,

entrepreneurship, and innovation are the pivotal points of economic development.

• This theory was formulated by Joseph Schumpeter’s 1942 book Capitalism, Socialism and Democracy, to challenge the classical view of Adam Smith, which claimed that capital accumulation drove economic growth.

• Schumpeter's theory has been widely accepted within the last 15 years, because it explains the major changes occurred in the US economy since the 1980s. US economy grew not because there was more capital to invest in bigger car factories, but because Americans developed a wide array of new technologies, particularly ICT, and used them widely. Although capital was needed for these technologies, capital was not the driver; nor was capital a commodity in short supply.

• In the hope to imitate US results, the central goal of the economic policy of many nations shifted towards greater innovation to create new products and services to expand wealth and quality of life.

• EU Framework Programmes are but one example of such policy

1.1 From Research Lab to market and private funding

What do European top innovators have in common?

• Perform very well in Business R&D expenditures and other innovation indicators related to firm activities.

• Have higher than average scores in the Public-private co-publications per million population indicator, what points in the direction of good linkages between the science base and businesses.

• Excel in the commercialisation of their technological knowledge, as demonstrated by their good performance on the indicator License and patent revenues from abroad.

• Furthermore, the overall good performance of the innovation leaders reflects a balanced national research and innovation system.

1.1 From Research Lab to market and private funding

Sources: Innovation Union Scoreboard 2010

R&D versus Commercialisation Phase

1.1 From Research Lab to market and private funding

TO FACILITATE THE COMMERCIALISATION EXIST INTERMEDIATE STRUCTURES SUCH AS

- Innovation intermediaries

An Organization at the Center of the region’s, state’s or country’s efforts to align local technologies, assets and resources to work together on advancing Innovation.

Examples: www.cotec.pt / www.cotec.es / www.cotec.itwww.senternovem.nlwww.innovasjonnorge.no

- Technology Transfer Offices (TTOs)

Units located at companies, universities and governmental dedicated to identify research results (knowledge, technologies, methods) which have potential commercial interest and strategies for how to exploit it.

Their main goal is to bridge the asymmetry gap between the researcher and the market.

1.1 From Research Lab to market and private funding

Technology Transfer Framework

TTO

No offer the Project

License

Inventor

Switch to Basic

research

Diclosure the invention

Spin-off

No License

Firm

Offer the project

1. Why TTO exist??

3. License or Spin-off??

2. Inventor’s incentives to develop projects??

4. Spin-off Development??

Source: Vendrell (2008), Transfer of knowledge from the lab to the market:

The idiosyncrasy of academic entrepreneurs.

License vs. Spin-off

• Historically, monetisation of knowledge transfer has been dominated by licenses, because the royalties obtained by the TTO almost always surpass spin-off income

• Also, it is less costly to sell knowledge to a company in terms of time and effort than to create a new way to exploit it

1.1 From Research Lab to market and private funding

Sources: Vendrell (2008), Transfer of knowledge from the lab to the market:

The idiosyncrasy of academic entrepreneurs.

Phases in the development of a spin-off

Research Oportunity framing

Pre-organisation

Re-orientation

Sustainable returns

Opportunity Recognition

Entrepreneurial Commitment

Threshold of credibility

Threshold of sustainability

1.1 From Research Lab to market and private funding

Different views of each agent of the transfer process

Actions Primary Motivations

Secondary Motivations

Organisation’s Culture

Scientist / Technician / Inventor

Keep on with the basic research or commercialise the current project

Acknowledgement from the academic world

Economic benefit and additional funding for research

Scientific

TTO License technology or spin-off creation

IP protection and commercialisation

To facilitate the diffussion of the technology and obtain additional funding

Bureaucratic

Company / Entrepreneur

Commercialise the new technology

Economic benefit

Control the IP of the new technologies

Entrepreneurial

And 2 more problems in spin-off creation

• Research groups have difficulties in becoming entrepreneurs– opportunity cost academic careers– lack of management skills – lack of market knowledge

• Due to its recent importance, national legislations are being adapted little by little to promote knowledge transfer

1.1 From Research Lab to market and private funding

EXAMPLE: SPAIN

1.1 From Research Lab to market and private funding

• Public bodies received 60% of EU FP6&7 funding• Tech transfer practice started at late 1990s.

– University KTOs created mainly in 1998-2008. – The Spanish Association of University TTOs created in 1999.

Current Transfer National Indicators Survey launched in 2004• A transfer system focused on patents and licenses

– Until 2008, survey only asked spin-offs # vs. 15 questions on patents and licenses

• Not-friendly legislation– Until 2008 was legally incompatible being a public researcher and

hold equity in a private enterprise. No clear regulation to develop this change ever since.

Spanish Tech Transfer Indicators

Tech Transfer Indicators (Spain) 2007 2008 2009

No. Patents (national & int’l) 626 691 914

No. License Contracts 190 171 182

Income from Licenses (M€) 1,94 2,4 2,61

No. Spin-offs Created 120 100 118

Income from Spin-offs (000s €) Not recorded Not recorded 32

Source: RedOTRI Survey (started in 2001, modified in 2004)

1.1 From Research Lab to market and private funding

Evaluation of FP6 in Spain

Source: Ministry of Science and Innovation, Evaluation of the impact of the FP6 in the RTD public system in Spain, 2010

• FP6 succeeded extending basic research, interdisciplinary knowledge and international collaborations (affirmed by 70% researchers surveyed)

• FP6 low performance in commercial and industrial use of generated knowledge (claimed by 62% researchers surveyed)

• Low transfer rate in technologies with commercial potential– 70% surveyed researchers believed their knowledge was transferable. – 51% considered their results of commercial application – 37% reported to effectively transferred it– 24% effectively commercialised their results. Spin-offs was the least way to transfer

• Only 25% researchers claimed FP6 improved access to private financing

Why is it essential to support companies that have received FP funding?

1. The EU needs them to remain competitive in the global economy

2. Due to their economic potential, individual EU nations are doing their homework to promote and streamline spin-off creation

3. Latest scientific research proves that academic and university spin-offs are more productive in the medium term because the academic talent produces better technologies

1.1 From Research Lab to market and private funding

Reason 1. EU needs to remain globally competitive

Reason 1. EU needs to remain globally competitive

Reason 2: EU nations streamline spin-off creation to impulse economy

• The case of the incentives system of Catholic University of Leuven TTO (LRD)– Based on the financial autonomy of the TTO– LRD divisions are entitled to participate intellectually and

financially in spin-offs– Incentive schemes to researchers

• Researchers receive intellectual property stock in “founder shares” in exchange for the input of their know-how and goodwill

• They can also invest in the s.o. by obtaining a pro rata share in the common stock of the company

– The university created 2 seed capital funds in partnership with 2 major banks to fund start-ups to exploit university know-how

Reason 2: EU nations streamline spin-off creation to impulse economy

Reason 3: academic spin-offs are more productive

Sources: Research Policy (2005), Journal of Technology Transfer (2009), Vendrell (2008), Transfer of knowledge from the lab to the

market: The idiosyncrasy of academic entrepreneurs.

• Research (Ensley & Hmieleski, 2005; Zhang, 2009) suggests that new university spin-offs are less productive than other new technology-based firms because of lack of managerial skills and different degrees of technological development.

• However, Ortín&Vendrell (2008-2010) compared the growth in productivity of both kinds of firms using a longitudinal Spanish dataset, and demonstrated that productivity grows faster in university spin-offs.

Initial differences disappear after 2-3 years. At the 5th year, the productivity of university spin-offs is significantly greater in statistical terms. These results were consistent with the findings for other countries (US, Canada, UK, Italy)

Reason 3: academic spin-offs are more productive

• If they survive, innovative academic research business are more productive in the medium term because of their characteristics: academic talent > better technologies

• Empirical evidence also proves that academic entrepreneurs use venture capitalists as a means of gaining access to managerial skills, and not only finance

Source: Ortín-Ángel, Pedro and Vendrell-Herrero, Ferran (2010) 'Why do university spin-offs attract more venture

capitalists?', Venture Capital, 12: 4, 285 — 306

The implication for policy makers

University spin-offs with founders that have a lack of managerial skills could be more interested in incorporating venture capital than other high-tech firms.

Policies facilitating contact, information transmission and trust between venture capitalists and TTOs could enhance and stimulate the extension of venture capital and, as is also pursued, in those sectors with more added value.

Source: Ortín & Vendrell,Venture Capital (2010)