Innovation challenge is a real moving target
Europe should increase the annual investment into research and innovation from €300bn to €600bn in order to remain competitiveMaria Koleva , Brussels
InnovFin is a set of different financial products launched under Horizon 2020, EU research and innovation programme, which are all designed to fit together and cover a variety of loans, guarantees and equity-type funding, adapted to innovators' necessities.
Close-up: Marc D'hooge is a senior innovation finance advisor at the European Investment Bank. Previously, he served as the bank's InnovFin Programme Manager. Mr D'hooge has substantial experience in the financing and structuring of private and public sector projects in a large number of European countries, with a specific focus on the field of research, development and innovation. He was deeply involved in the process of negotiation and establishment of the InnovFin financial instruments within Horizon 2020.
- Mr D'hooge what is the performance so far of the EIB Group's InnovFin tool that provides EU finance for innovators?
- InnovFin is a set of different financial products launched under Horizon 2020, EU research and innovation programme, which are all designed to fit together and cover a variety of loans, guarantees and equity-type funding, adapted to innovators' necessities. Financing is either provided directly or through a bank or a fund. InnovFin financially supports research and innovation projects of young and old, large and small companies from 42 countries, the EU Member States plus all associated countries to Horizon 2020. From the beginning of the current programming period up to the end of 2017, the European Investment Bank (EIB) has propped up financially 110 innovative companies and projects, and the European Investment Fund (EIF) - over 11,000 small and early-stage enterprises, supporting respectively 90,000 and 500,000 jobs. The InnovFin financing provided by the bank over this period was €7.4bn and from the fund - €6.8bn, altogether over €14bn. The big companies are dealt by EIB, the small companies - by EIF. The tool has targeted financial products for certain sectors which have a very difficult structural access to finance, like energy and infectious diseases. InnovFin also provides advisory services to support companies and project promoters for innovation to get access to finance, as there are still a certain kind of market constraints. As it was said at the conference in June in Sofia on “Financial instruments fostering research and innovation”, we have enough start-ups in Europe, but we don't have enough capacities to scale them up to fully fledged and large companies. So there is a need for additional capital and risk capital to scale up innovative start-ups to larger businesses.
- What sectors are mainly on the radar of InnovFin?
- Basically these are all innovative type of businesses. I already mentioned about energy and infectious diseases, that are just thematic products, part of the InnovFin product palette. Concerning the total EIB innovation investment by sector that is not limited to this tool, on the first place - with 34% - is industry and manufacturing, followed by education with 25%, telecommunications with 15%, small and medium enterprises and midcap companies - 10%, research infrastructure - 8%. Our products serve different projects, whatever their size and stage, they can find appropriate solution. For example, InnovFin technology transfer is dedicated to investments in such funds that are focused on pre-seed and seed stages, particularly in the field of key enabling technologies, among them ICT, nanotechnology, biotech, cleantech and medtech, but also promotion of intellectual property and licensing. Another product targets investment in business angel managed funds or co-investment funds, and one other improves access to finance by making debt financing available to innovative SMEs and small midcaps with maximum 499 employees. The corporate research equity, for instance, increases the supply of equity-type financing under the European Fund for Strategic Investment to big R&I programmes and to innovative large midcaps. InnovFin Science is concerned with R&I investment by research institutes, universities and public or private research organisations.
- How is the advisory segment of the instrument improving the 'bankability' of the projects, and what is its portfolio of activities?
- The InnovFin Advisory was kicked off under Horizon 2020 by a joint EIB-European Commission initiative to assist eligible public and private counterparts to improve the bankability and investment-readiness of large, complex, innovative projects that need substantial long-term investments, because even being fundamentally good projects, many of them face difficulties in finding finance. Our services are provided independently of the EIB's lending and investment decisions. The Advisory guides its clients - with services like strategic planning, business modelling, capital structure, debt and risk allocation and many others - on how to structure their R&I projects in order to improve their access to finance, and helps them to capitalise on their strong points and adjust their business model, governance, funding sources and financing structure. All this can ensure better perspectives for implementation of the project. The service also provides advice to improve investment conditions through activities which are not specific for the project, such as developing a business case for new financing mechanisms and preparing studies on increasing the effectiveness of financial instruments to address concrete R&I needs. The InnovFin Advisory is also publishing studies on different important economic sectors with innovation at their very core. Recently, we released such study on access-to-finance conditions for Life Science R&D, precisely focused on funding the next wave of medical breakthroughs. In it, we pointed what works and what needs fixing and made our recommendations.
- Could you please give some concrete examples about the supported projects and their success stories?
- One very sound example of ground-breaking invention is Biosurfit, a Portuguese company that specialises in innovative medical diagnostics. It definitely revolutionises medical diagnostics, allowing doctors to have blood-test results in a few minutes from a small drop of blood. Previously for some conditions it took about two days of waiting for results. With a €12m loan from the EIB, the company is building a new factory in Lisbon. Qwant, the European competitor of Google, is a Franco-German search engine striving for success by guaranteeing the utmost respect for the privacy of its users and providing non-violent content to young children. The EIB provided €25m to support the start-up company. The European Spallation Source in Lund, Sweden, and in Copenhagen, is a multi-disciplinary research centre based on the world's most powerful neutron source and was supported by an EIB loan of €100m for the construction of the research facilities. It will give scientists new possibilities in a broad range of research, from life science to engineering materials, from heritage conservation to magnetism, and the centre is expected to deliver its first neutrons by the end of the decade. With €100m, InnovFin financed Tunisie Telecom for the roll-out of 4G mobile network, including 1,000 cellular sites and 2,000km optic cables. These are just few examples from a long list of successes, but represent a perfect picture of the scale and the impact of our products.
- There are clear similarities between Juncker Plan and InnovFin. Do they interact?
- There is an interaction in the field between InnovFin and Juncker Plan because it also finances innovation activities of higher risk. Juncker Plan will reach soon the target of its first phase - mobilising investment of €315bn. For example, in Bulgaria we have an innovative project, Biovet, supported by the Juncker Plan European Fund for Strategic Investment guarantee. It is a project of the company Huvepharma which is developing additives and medicaments for farm animals, important for the Bulgarian agricultural sector. The €212m project, of which €100m from EIB, covers construction of new manufacturing facilities and the promoter's research, development and innovation activities.
- In your view, can we say that the innovation crisis in Europe, as some experts assert, is over?
- I am looking on this differently. I wouldn't call it innovation crisis, but rather an innovation challenge. Because innovation is perpetual and has been always there, and has been always intensive. Its base was always increasing. And that is why we cannot say that the challenge is over, because it is never finished, it is a real moving target. I firmly agree with the standpoint of Christoph Kuhn, Director of the Mandate Management Department at the European Investment Bank, who said at the conference in Sofia earlier this month that Europe should increase the annual investment into research, development and innovation from €300bn to €600bn in order to remain competitive. Therefore, we have to develop this investment in order to be in good shape relative to our main competitors.
- How will InnovFin develop in the next Multiannual Financial Framework?
- In the future, we will work strongly together with the InvestEU programme, which is a new initiative for fostering investments in long-term sustainable businesses and infrastructure, and will build on the success of the Juncker Plan's European Fund for Strategic Investments. In fact, InnovFin will be part of it and will become a fully-fledged financial instrument for innovation. This programme will shelter the multitude of EU financial instruments existing now to uphold investment in the EU. It will make funding for investment projects simpler, more flexible and more efficient. We will further work together with the European Commission to develop the European Innovation Council, whose pilot phase is now running, and which is planned to make available more funds for small businesses in order to scale up into big businesses.
- Are the universities now more open to the industry and not working as lonely labs?
- Yes, this is changing nowadays. But of course this revolution takes time. Also, universities currently tend to bind the research and innovation resources with practical implementation of new products and are becoming more active in the marketplace.
- What, according to you, restrains Europe to build its own Silicon Valley?
- There are two big issues that I can mention and the first, for sure, is the lack of sufficient risk capital to scale up innovative and promising start-ups into prosperous larger companies. Secondly, in general, again the lack of risk capital induces the entrepreneurs in Europe to refrain from building up bigger businesses from scratch. We have to improve also the ecosystem's risk taking capacity and willingness to take risk as well. This is a 'culture of failure' that is needed, but it is changing now, and it will take some time to acquire this attitude. It can happen by opening the market and providing more risk capital. This is made by EIF already, and in the future the European Innovation Council has an important role to play in this respect. This kind of pushing certain attitude and certain willingness to take risk in the market, and play an active role as a market player.
- Indeed, the situation with venture capital in Europe is not so bright, but how can it be boosted?
- As I said, in Europe we lack venture capital investment, although there were efforts in the last five years to create a venture capital market. We have still a lot to do because the capital investments in Europe are far lower than the investments in the US. Every initiative that can boost the venture capital market is very welcome. In this respect, the VentureEU programme launched two months ago by the European Commission and the European Investment Fund will have undoubtedly a very positive role to bring up investment in almost 1,500 innovative start-up and scale-up companies throughout Europe, and give them chances to grow faster.