Good practices on innovation and R&D

funding policies support

Ukraine Knowledge Economy Seminar

Kiev, April 22nd, 2008

Peter Lindholm

peter@lindholm-consult.com

Financing systems in the EU

2

Capital Access Index• Measures how easily SMEs can

get financing• Here indicated as a deviation

from EU average

• Based on 56 indicators like:• macroeconomic policies• institutions• finance and banking• equity markets• bond markets• alternative sources of capital• international access• etc

-2,00 -1,50 -1,00 -0,50 0,00 0,50 1,00 1,50 2,00

SI

LV

PL

SK

HU

LT

CZ

IT

GR

BE

PT

AT

EE

FR

ES

DE

NL

IE

FI

DK

SE

UK

Source: Milken Institute, 2005

Key roles of public authorities

3

Ensure fluidity of the risk capital market: Support innovation and R&D investment in SMEs; Identify SME real demand; Improve the legal, administrative and fiscal environment to

increase the flow of equity for early stage investment; Provide investment readiness schemes to entrepreneurs.

Invest in public/private partnership to share risk in this market;

Raise awareness on a permanent basis

Segmenting the market

4

Financingneeds

Financing Stage

HighRisk

LowRisk

Growth

SEED STARTUP EARLY GROWTH

Financing stages

EXPANSION

MARKET GAP

MARKET GAP

Targeted Policies and specific tools

Start-up phase First financial roundSubsequent financial

round•Seed capital fund

•Loans without interest and/or guarantee

•University and research centres spin off funds

•Micro-credit

•Public or para-public funds for creation or innovation

•Public grants

•Reimbursable loans

•Business Angels

•Seed capital fund

•Banks loans/Overdraft

•Guarantee funds

•Public or para-public investment funds

•Regional Public venture capital

•Public grants

•Corporate venturing

•Private venture capital

•Bank Loans

•Share subscription bonus

•Mezzanine

Indirect supports: Pre-incubation, incubation, Nurseries and easy-in and easy-out workshops, Tutorate (coaching, mentoring, hands-on management), Legislative work (financial services, capital adequacy, etc)

Integrated actions: Financial value chain, intermediation

5

Three unavoidable building blocks

You cannot force companies to innovate if they are not hungry for it. Convincing them takes time and needs success stories

Financial tools must support a policy that is understandable by stakeholders (why, what, when)

The biggest problem in implementation often is the public sector itself

Policy fact sheet :National policy- France. Finance cycle

7

FeasibilityFormulation Development Launch Life Cycle

Capital-risk Companies

Capital Development Companies

Seed capitalPersonal Loans

Business Angels

Self-financing

OSEO Banking Competitions

Research –Tax Credit

Other forms of public help

High

Source: OSEO (F)

Risk Low

Policy fact sheet :National policy- France. Finance cycle

8

Policy fact sheet :Fiscal incentives – EU examples

EU examples: Czech Republic :

The new tax regulation (2005) to deduct expenses on R&D carried out for their own needs from

their tax base a major change in the Czech system which previously did not

apply any indirect measures favouring R&D

Ireland : The 2004 Finance Act introduced an R&D tax credit 20 % tax credit against corporation tax complement the various direct R&D grant supports also

available through the various State agencies.

9

In proportion to the level of the expenses• Immediate write-off or expensing• Tax credits proportional to the level of R&D

In proportion to the increment of R&D• Definition of the base (e.g. last two years)

Measures intended to remove ceilings in the effective use of tax incentives

• Refundability of unused tax credits• Carry-back and carry forward of unused tax credits• Flow through mechanisms, i.e. transfer of unused tax credits to an eligible third party

Focus on specific types of R&D• Environment, health, defense, agriculture… • University, SME, regional support, R&D•Cooperation

Indirect tax incentives• Reduced corporate income taxes, exemption of capital gains taxes• Reduced taxes on dividends from venture capital funding• Reduced taxes for high-skilled immigrants

Policy fact sheet :The Russian Venture Company - Russia

Policy fact sheet :Greater London Enterprise - UK

Background : London’s economic development company, Commercially and constitutionally

independent

Tools: GLE Development Capital; One London Business Angels; Factoring/Invoice Finance; Small Business Loan; Mentoring and Investment Readiness Programmes.

Application €750,000-7,500,000 from GLE Development Capital; €140,000-1,000,000 from One London Business Angels.

Good practices : GLE also manages a £7 million loan fund that has provided finance to over 400

start up and early stage businesses The group now supports approximately 6,500 small companies each year

Policy fact sheet :Regional support policy- Rhône Alpes

Source: RHONE-ALPES CREATION

PROJECTSHigh-tech

(strong potential)

I NDUSTRY ANDI NDUSTRIAL SERVI CES

(product- or process-based innovation)

SMALL INDUSTRIES(CAPACITY SUBCONTRACTING)

SERVICES AND TRADE

(traditional, moderately innovative activities)

MICRO BUSINESSES TRADECRAFTS

TRAINING – ADVICE- SUPPORT

I ncubators CREALYSGRENOBLE

I NNOEXPERT(CCI Lyon)

BUSINESS CENTRE(EM Lyon)

BUSINESS I NCUBATORS

(NOVACITESFRAC CREATION)

Business development and reception service(CCI )

SponsorshipLocal platforms

Entreprendre en FranceBanks + Comité SofarisCCI + professionalsChartered accountants(ATEN)

« 3 hours – 3 days »

FINANCING

« Venture Capital » (National or I nternational)(Sudinnova, Siparex Venture, Banexi, Partech)

« Seed capital » - National (thematic)(I Source, Emertec, BioAm,…)

- Regional(Amorçage Rhône Alpes)

« Business development venture capital »Rhône-Alpes CréationBanque Pop., Crédit AgricoleRhône-Dauphiné Développement

DEVELOPMENT TYPES

« Réseau Entreprendre »(Loans on trust + Sponsorship)

« ARJE » (Regional repayable short-termloans for new businesses—1-5 years)

« P.C.E. »(BDPME loans)

« Mille et Un Talents »(Regional grants)

OSEO

LOCAL

FUNDING

REQUIREMENTS

SCALE

« Local platforms »(Loans on trust)Local initiative platformADI E

BusinessAngels

€300,000+

€300,000

to

€45,000

€45,000

to

€15,000

€15,000

to

€7,500

Sup. de Co. Grenoble

Policy fact sheet :Enterprise Ireland

Background : 8 regional offices, Staff 950, Budget 2004 Euro 260m.

Tools: investment strategy Ordinary Shares – High potential start-ups (HPSU) Preference Shares (with conversion option) Preference Shares – (Expansions/Developing companies)

Normally 5 year Term with low coupon rate Redemption after 5 years

Application EI will typically take up to 10% of the share capital; Balance of funding in the form of grants and/or preference share – normally on a

50/50 basis;

Limits: The level of EI funding determined by the potential level of exports and job

creation;

Good practices : Sectorally focused and regionally based

Thank you for your attention !

QUESTIONS ?

For more information, contact :

Peter LINDHOLM

Lindholm-Consultpeter.lindholm@wanadoo.fr

Cell: 00336 143 150 13

Skype: p.lindholm1