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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
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