Presentation delivered in Brussels in April 2011 during the training of DG Info Tech Tranfer officers

1. ICT FINANCE MARKETPLACE
- BRIDGING THE R&I FINANCING GAP
Training delivered by EBAN on Behalf of the ACCESS ICT project
AGENDA – April 7th, 2011; 10:00
1. Bridging the R&I financing gap
1.1 From Research Lab to market and private funding
1.2 The private funding ecosystem: seed, early stage and venture capital
market
1.3 Preparation of research projects and companies
2 - The role of ICT Finance Marketplace/ ACCESS ICT in promoting the
investment readiness of EU funded R&I projects

2. 1. Bridging the R&I financing gap
Claire Munck

3. Diagnosis
• Over 2000 ICT R&D projects are supported by the European Commission
through its 7th R&D ICT framework programme, with a budget of €9.1bn.
• The ICT framework covers a range of different ICT areas from digital
content to programming; network and telecom services; smart devices
and mobile apps; robotics; distribution and ICT services etc.
• Yet of all these R&D projects supported by EU finance only a small
number go on to
• commercialise the results and successfully spin out a viable business and
go on to attract finance and capitalize on the EC investment.
• Many potentially very exciting new technologies, products and services
never get to the market place and never get to the equity community.
1. Bridging the R&I financing gap

4. Diagnosis
Are all of these ICT R&D projects too risky for early stage investment
through angels or VCs?
No!
Key issues:
-Lack of investment readiness: Understanding of investor requirements
-Importance of the management team and intellectual property
1. Bridging the R&I financing gap

5. 7.41 % of the EU Budget will be devoted to
research and innovation in 2013
GREEN PAPER: From Challenges to Opportunities: Towards a Common
Strategic Framework for EU Research and Innovation funding
1. Bridging the R&I financing gap

6. 1.1 From Research Lab to
market and private funding
Miguel Trujillo

7. So, we are in the Innovation Economy
• Innovation economics claims that knowledge, technological change,
entrepreneurship, and innovation are the pivotal points of economic
development.
• This theory was formulated by Joseph Schumpeter’s 1942 book Capitalism,
Socialism and Democracy, to challenge the classical view of Adam Smith,
which claimed that capital accumulation drove economic growth.
• Schumpeter's theory has been widely accepted within the last 15 years,
because it explains the major changes occurred in the US economy since
the 1980s. US economy grew not because there was more capital to invest
in bigger car factories, but because Americans developed a wide array of
new technologies, particularly ICT, and used them widely. Although capital
was needed for these technologies, capital was not the driver; nor was
capital a commodity in short supply.
• In the hope to imitate US results, the central goal of the economic policy of
many nations shifted towards greater innovation to create new products
and services to expand wealth and quality of life.
• EU Framework Programmes are but one example of such policy
1.1 From Research Lab to market and private funding

8. What do European top innovators
have in common?
• Perform very well in Business R&D expenditures and other
innovation indicators related to firm activities.
• Have higher than average scores in the Public-private co-
publications per million population indicator, what points in
the direction of good linkages between the science base
and businesses.
• Excel in the commercialisation of their technological
knowledge, as demonstrated by their good performance on
the indicator License and patent revenues from abroad.
• Furthermore, the overall good performance of the
innovation leaders reflects a balanced national research
and innovation system.
Sources: Innovation Union Scoreboard 2010
1.1 From Research Lab to market and private funding

9. R&D versus Commercialisation Phase
1.1 From Research Lab to market and private funding

10. TO FACILITATE THE COMMERCIALISATION EXIST
INTERMEDIATE STRUCTURES SUCH AS
- Innovation intermediaries
An Organization at the Center of the region’s, state’s or country’s efforts to align local technologies,
assets and resources to work together on advancing Innovation.
Examples:
www.cotec.pt / www.cotec.es / www.cotec.it
www.senternovem.nl
www.innovasjonnorge.no
- Technology Transfer Offices (TTOs)
Units located at companies, universities and governmental dedicated to identify research results
(knowledge, technologies, methods) which have potential commercial interest and strategies for
how to exploit it.
Their main goal is to bridge the asymmetry gap between the researcher and the market.
1.1 From Research Lab to market and private funding

11. Technology Transfer Framework
Inventor 2. Inventor’s incentives to
develop projects??
Diclosure the Switch to
invention Basic
research
4. Spin-off TTO 1. Why TTO exist??
Development??
Offer the
Spin-off project No offer the
Project
Firm
3. License or
Spin-off??
Source: Vendrell (2008), Transfer of
knowledge from the lab to the market:
License No License The idiosyncrasy of academic
entrepreneurs.

12. License vs. Spin-off
• Historically, monetisation of knowledge
transfer has been dominated by licenses,
because the royalties obtained by the TTO
almost always surpass spin-off income
• Also, it is less costly to sell knowledge to a
company in terms of time and effort than to
create a new way to exploit it
Sources: Vendrell (2008), Transfer of
knowledge from the lab to the market:
The idiosyncrasy of academic entrepreneurs.
1.1 From Research Lab to market and private funding

13. Phases in the development of a spin-off
Research Oportunity Pre- Re- Sustainable
framing organisation orientation returns
Opportunity Entrepreneurial Threshold of Threshold of
Recognition Commitment credibility sustainability
1.1 From Research Lab to market and private funding

14. Different views of each agent of the
transfer process
Actions Primary Secondary Organisation’s
Motivations Motivations Culture
Scientist / Keep on with the Acknowledgem Economic Scientific
Technician / basic research or ent from the benefit and
Inventor commercialise academic additional
the current world funding for
project research
TTO License IP protection To facilitate the Bureaucratic
technology or and diffussion of
spin-off creation commercialisati the technology
on and obtain
additional
funding
Company / Commercialise Economic Control the IP Entrepreneurial
Entrepreneur the new benefit of the new
technology technologies

15. And 2 more problems in spin-off creation
• Research groups have difficulties in becoming
entrepreneurs
– opportunity cost academic careers
– lack of management skills
– lack of market knowledge
• Due to its recent importance, national
legislations are being adapted little by little to
promote knowledge transfer
1.1 From Research Lab to market and private funding

16. EXAMPLE: SPAIN
• Public bodies received 60% of EU FP6&7 funding
• Tech transfer practice started at late 1990s.
– University KTOs created mainly in 1998-2008.
– The Spanish Association of University TTOs created in 1999.
Current Transfer National Indicators Survey launched in 2004
• A transfer system focused on patents and licenses
– Until 2008, survey only asked spin-offs # vs. 15 questions on
patents and licenses
• Not-friendly legislation
– Until 2008 was legally incompatible being a public researcher
and hold equity in a private enterprise. No clear regulation to
develop this change ever since.
1.1 From Research Lab to market and private funding

17. Spanish Tech Transfer Indicators
Tech Transfer Indicators (Spain) 2007 2008 2009
No. Patents (national & int’l) 626 691 914
No. License Contracts 190 171 182
Income from Licenses (M€) 1,94 2,4 2,61
No. Spin-offs Created 120 100 118
Income from Spin-offs (000s €) Not recorded Not recorded 32
Source: RedOTRI Survey (started in
2001, modified in 2004)
1.1 From Research Lab to market and private funding

18. Evaluation of FP6 in Spain
• FP6 succeeded extending basic research, interdisciplinary knowledge and
international collaborations (affirmed by 70% researchers surveyed)
• FP6 low performance in commercial and industrial use of generated
knowledge (claimed by 62% researchers surveyed)
• Low transfer rate in technologies with commercial potential
– 70% surveyed researchers believed their knowledge was transferable.
– 51% considered their results of commercial application
– 37% reported to effectively transferred it
– 24% effectively commercialised their results. Spin-offs was the least way to transfer
• Only 25% researchers claimed FP6 improved access to private financing
Source: Ministry of Science and Innovation, Evaluation of the
impact of the FP6 in the RTD public system in Spain, 2010

19. Why is it essential to support companies that
have received FP funding?
1. The EU needs them to remain competitive in the global
economy
2. Due to their economic potential, individual EU nations are
doing their homework to promote and streamline spin-off
creation
3. Latest scientific research proves that academic and
university spin-offs are more productive in the medium term
because the academic talent produces better technologies
1.1 From Research Lab to market and private funding

20. Reason 1. EU needs to remain globally
competitive

21. Reason 1. EU needs to remain globally
competitive

22. Reason 2: EU nations streamline spin-off
creation to impulse economy
• The case of the incentives system of Catholic University
of Leuven TTO (LRD)
– Based on the financial autonomy of the TTO
– LRD divisions are entitled to participate intellectually and
financially in spin-offs
– Incentive schemes to researchers
• Researchers receive intellectual property stock in “founder shares”
in exchange for the input of their know-how and goodwill
• They can also invest in the s.o. by obtaining a pro rata share in the
common stock of the company
– The university created 2 seed capital funds in partnership
with 2 major banks to fund start-ups to exploit university
know-how

23. Reason 2: EU nations streamline spin-off
creation to impulse economy

24. Reason 3: academic spin-offs are more
productive
• Research (Ensley & Hmieleski, 2005; Zhang, 2009) suggests
that new university spin-offs are less productive than other
new technology-based firms because of lack of managerial
skills and different degrees of technological development.
• However, Ortín&Vendrell (2008-2010) compared the
growth in productivity of both kinds of firms using a
longitudinal Spanish dataset, and demonstrated that
productivity grows faster in university spin-offs.
Initial differences disappear after 2-3 years. At the 5th
year, the productivity of university spin-offs is significantly
greater in statistical terms.
These results were consistent with the findings for other
countries (US, Canada, UK, Italy)
Sources: Research Policy (2005), Journal of Technology Transfer
(2009), Vendrell (2008), Transfer of knowledge from the lab to the
market: The idiosyncrasy of academic entrepreneurs.

25. Reason 3: academic spin-offs are more productive
• If they survive, innovative academic research
business are more productive in the medium
term because of their characteristics:
academic talent > better technologies
• Empirical evidence also proves that academic
entrepreneurs use venture capitalists as a
means of gaining access to managerial skills,
and not only finance
Source: Ortín-Ángel, Pedro and Vendrell-Herrero, Ferran
(2010) 'Why do university spin-offs attract more venture
capitalists?', Venture Capital, 12: 4, 285 — 306

26. The implication for policy makers
University spin-offs with founders that have a lack of
managerial skills could be more interested in
incorporating venture capital than other high-tech
firms.
Policies facilitating contact, information transmission
and trust between venture capitalists and TTOs
could enhance and stimulate the extension of
venture capital and, as is also pursued, in those
sectors with more added value.
Source: Ortín & Vendrell,Venture Capital (2010)