Mutual Learning Exercise on Support for Private R&D investment

FINANCIAL INSTRUMENTS Challenge paper

Vanja Rangus

Brussels, June 30, 2015

Financial instruments and different life-cycle stages

Traditional financing - Challenges for design and implementation

LOANS How to overcome problems?(a) Develop an appropriate guarantee scheme, (b) Improve the collateral situation of the firms seeking

loans, or (c) Improve the ability of the banks to assess and select

potentially profitable projects.

Traditional financing - Challenges fo design and implementation

GUARANTEES

• Legislation• Familiarity • Ability to assess the risks of lending• Governance • Timelines • Financing • Fee • Complementarity

DISCUSION

1. Identification of policy challenges

2. How MCs have overcome challenges

3. Challenges that could benefit from a potential MLE project

4. Are there groups of countries interested in potential MLE projects

5. How to take the process to the next stage

Challenges fo design and implementation

Tax credits for individual investors (business angels)

• Whether and how to target the tax incentive to professional angel investors ?

• To what extent to target the tax incentives to types of companies and purpose(e.g., product development, marketing, training etc.) the government intends to support?

• Is the program really capable of bridging the financing gap for the early start-up companies and at what cost? Will the rate of return on government investment in tax credit be socially justified?

Venture capital Evolution

• Evolution of VC market (private, public, PPP)

• Positive and negative aspects if the fund is public or only supported by governments

• Co investment VC funds and their role

VC co- investment funds challenges I

1. How to set up a governance system?2. What is the ownership structure of the fund? 3. Who will manage the fund: a private manager or leave

management to EIF? 4. How to design the financial instrument for regional

environments?5. Do we plan any complementarity with other instruments as

grants and tax incentives?6. Do we plan any combination also with coaching, mentoring?

VC co-investment funds challenges II

7. Any financial support for capacity building of SMEs? 8. Any financial support for business angel networks (BANs) ?9. Active or passive role in making decision on investments?10. Do we have enough willingness to take the risk?11. How do we intent to distribute the profit?12.Do we plan any resources for impact measurement?13. Other: legislation, size of the fund, ex ante assessment, smart strategy, ..

Alternative financing - crowdfunding platforms

• Online finance: equity-based crowd-funding , peer-to-peer business lending, and from reward-based crowd-funding to debt-based securities

• Fostering innovation, generating jobs and funding worthwhile social causes.

• Significant growth – 144% last year• Government role more to support awareness raising and

through appropriate regulations and protection of investors

CONCLUSIONS

Designing FIs requires:

• Long term vision • Support given to SMEs through the whole life cycle of

their development • A good combination with successful R&D grants and

coaching/mentoring schemes• Willigness to take risks • Distribution of risks and rewards• Sustainability-

DISCUSION

1. Identification of policy challenges

2. How MCs have overcome challenges

3. Remaining challenges that could benefit from a potential MLE project

4. Are there groups of countries interested in potential MLE projects

5. How to take the process to the next stage