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Accruing Interest: Innovative Funding that Perseveres

By Intesa Sanpaolo

The European Commission Asks: How should EU funding best cover the full innovation cycle from research to market uptake?

Key points:

In our opinion, to cover the full innovation cycle the CSF should:

  • Bring together all actors involved: researchers, enterprises, users, civil society and financial experts;
  • According preference to those projects accompanied by specific business plans aimed at bringing results to the market;

In order to face today’s “grand challenges”, we do not only need more technology but also innovation, as pointed out in the Europe 2020 Strategy. This new approach should bring together all actors involved in the innovation chain: researchers, enterprises, users, civil society and also finance experts.

The European Commission often remarked that access to credit for enterprises, and in particular for SMEs, must be increased and that financial institutions should pay more attention to their financial needs. To this purpose, it is important to consider also the financial institutions’ points of view, which is strongly affected by the European financial regulatory framework. In this respect, we welcome the European Commission commitment according to which “The Commission will be particularly attentive to the impact on lending to SMEs when proposing increased capital requirements for banks in 2011.“ (The Small Business Act Review).

The role of banks and private investors in supporting SMEs’ growth is fundamental – especially in their start-up phase. However, in order to fully unlock it, it is important to create the appropriate conditions. In this regard, we would suggest:

  • Encouraging mutual understanding between finance and research: researchers should be enabled to dialogue with financial institutions, i. e. they should know how to draft a business plan, how to present it and which criteria will be used for the evaluation by private investors; 
  • Sustaining high-risk investments: spin-offs and start-ups do not often fulfill the requirements for a bank’s loan. At this early stage, business angels and venture capitalists should be considered as natural partners. However, in order to foster their involvement and increasing their investing opportunities new measures of risk-sharing should be envisaged, for instance by setting up dedicated guarantee 2. How should EU funding best cover the full innovation cycle from research to market uptake? funds or bolstering the use of public procurements, especially for those sectors which are pivotal for European competitiveness;
  • A favorable fiscal framework for high-risk investments supporting industries’ RDI activities.

We are aware that the implementation of the three above mentioned conditions implies a paradigmatic mind-set shift, and we believe that the next CSF should offer the chance to make a big step forward by deepening the dialogue between all actors involved in the innovation chain, including finance experts.

To this purpose, we would like to suggest some more specific measures:

  • Concerning the project proposal structure, an Innovation Plan should be accompanied by a Business Plan to improve research outputs. These Plans should be integrated as a “work package” in the project proposal itself: in this way, the link between research and market would be boosted;
  • Encouraging financial experts to take actively part to FP consortia to better evaluate project risks, market potential and soundness of the business plan (e.g. the above mentioned “Innovation Plan”). This would allow project partners to consider transferring research results to the market from the very beginning. In this way, the long term sustainability of the projects will be secured even once the European grants expired;
  • Fostering financial experts’ participation in the FP evaluation panels: the European Commission should introduce new participation rules in submitting project proposals and new evaluation criteria aligned with those used by private investors (Venture Capital, Equity Capital). Preference should be given to those projects accompanied by specific business plans aiming at bringing research results to the market;
  • Encouraging financial experts to take part to expert committees supporting the European Commission in creating and reviewing R&I programmes. In this regard, we would like to draw your attention on Intesa Sanpaolo Group’s experience. Mediocredito Italiano (MCI), a specialized bank fully owned by Intesa Sanpaolo, can rely on 16 experts in technological trends with qualification as FP6 and FP7 UE referees. Based on our experience from FP6 to current FP7, few experts from the financial environment take part to expert committees supporting European Commission in reviewing R&I programs;
  • Facilitating the assimilation of financial and entrepreneurial skills by researchers. One of the reasons why ideas do not turn into products lies in the scarce financial skills of researchers. In addition, It would be advisable to set up skills-scheme so as to complement university scientific curricula on the basis of the experience of the current 7FP Marie Curie Actions (how to write a business plan, how to approach a private investor, knowledge of existing financial and funding opportunities both in public and private sectors...).

Furthermore, our Group believes that technology transfer would deserve greater attention as well as dedicated and increased funding. On the basis of our experience, enterprises, and especially SMEs, are often more interested in research results than in being part of research consortia, and innovation requires more effective communication between research centers and industries.

Finally, the financing of the innovation cycle is normally divided in three main phases: the first one – which is actually funded through the 7FP - consists of the blue sky research and development; the second one, funded by the CIP, focus on demonstration and early introduction to the market; finally the third phase implies the full commercialization of the new product or service.

Normally, the first phase is the most critical one for private investors, due to the risky nature and to the uncertain economic return. On the contrary, if the project is solid enough, private investors can intervene in the second and third phase. From our point of view, it would be indeed fundamental to maintain the conceptual difference between the two funding programmes (i. e. FP and CIP) even in the context of a unified framework, allocating most of the public resources to the first phase, and interacting in the most effective way with private investors when it comes to the commercialization phase.

For any further comments or questions, please contact Intesa Sanpaolo’s International Regulatory and Antitrust Affairs Office:   

Mrs Alessandra Perrazzelli Head of International Regulatory and Antitrust Affairs