1

Hungary-EU-Israel Workshop Start-Ups and Innovation

Tel Aviv, 30th May 2011

The Innovation Union flagship initiative and framework conditions : How to provide incentives for start-ups early-stage innovation?

Emilie Tack, Innovation Policy UnitDG Research and Innovation

2

- Globalization of knowledge and innovation capacities

- Impact of the crisis on public finances and business (especially innovative SMEs) The EU has lost six million jobs, € 1,000 billion of annual GDP during the crisis;

- Major challenges

- Maximize available resources by leverage, integration and cooperation The EU target of 3% of GDP for R&D in 2020 could create 3.7 million net new jobs and nearly € 800 billion of annual GDP by 2025

Urgent need to fill the GAP at any level!

Europe is facing a major innovation emergency

3

Evolution of World R&D expenditure in real termsPPS in millions € at 2000 prices

• Ever stronger global competition for investments & markets

• US and Japan lead on innovation whilst emerging economies are quickly catching up

• On current trends, China is set to overtake the EU by 2014

China excluding Hong-Kong

Source: European Commission

The EU must close the innovation gap now

4

Research and innovation performance: EU Member States

Source: Innovation Union Scoreboard 2010

Note: the index used for comparison in the this chart is based on a set of 24 indicators

Strong variations across Member States

0.000

0.100

0.200

0.300

0.400

0.500

0.600

0.700

0.800

LV BG LT RO SK PL HU MT GR ES CZ IT PT EE SI CY EU FR LU IE NL AT BE UK DE FI DK SEES EU

5

• Competitors’ success: no accident nor luck

• Our key partners and emerging economies (eg. China, India, Brazil) follow a strategic approach to innovation and implement it!

• A strategic approach to innovation =

- Innovation is the overarching policy objective driving all other policies (education, skills, regional development, standards, tax policy …)

- Innovation policy is steered & monitored at the highest level (Prime Ministers are in charge)

What can we learn from our competitors?

6Our partners invest more in higher education

0

0,5

1

1,5

2

2,5

3

3,5

EU Japan US

% G

DP

Private

Public (direct)

Expenditure on tertiary education (% GDP)

7

% in the top university institutions of the 2010 Shanghai list

Source: European Commission

US leads top universities ranking

0

10

20

30

40

50

60

70

80

90

Top20 Top100 Top500

USA

EU

JAPAN

8

0

1

2

3

4

5

6

7

02 03 04 05 06 07 08 09

Mill

ion

s

China

Source: DB Research, Eurostat, Figures for 2008-2009 for EU+US+JP are estimates

National Statistics of China, 2010

Japan

United States

EU

Number of undergraduate students

Students enrolment

9

A flagship initiative of the Europe 2020 strategy

• Radically improving the framework conditions and reducing time-to-market

• Tackling underinvestment, fragmentation and duplication (“critical mass”)

• Using public funding to leverage private R&D (e.g. the EU Risk Sharing Finance Facility - RSFF)

• Promoting massive investment in skills, education, research and innovation especially through « recovery » packages (“Smart” fiscal consolidation)

See: http://ec.europa.eu/research/innovation-union/index_en.cfm

EU’s strategic approach: Innovation Union

10

• A “standardisation package” – comprising a Communication and a legislative proposal, to be adopted in May.

• 2 implementing legislative proposals to create a unitary patent protection (under enhanced cooperation between 25 MS) presented on 13 April.

• Proposals for putting in place an operational framework for the cross-border operation of venture capital funds by 2012.

• A review of the State aid research and development and innovation framework in 2011

• Proposals to exploit public procurement budgets for innovative products and services by the end of 2011

Improving Framework conditions

11

Key Framework conditions

Source: Eurostat

R&D procurement expenditures (excl. defence) in the US and EU in Bn € - 2007

Source: European Commission

Early-stage Venture Capital in Bn €, 2000 and 2009

12 IU Commitment 11

By 2012, the Commission will ensure that Venture Capital funds established in any Member State can function and invest freely in the EU

(If necessary by adopting a new legislative regime).

13 European Council conclusions follow-up

• Every effort should be pursued to lift remaining legal and administrative obstacles to the cross-border operation of venture capital.

• The Commission is invited to present proposals by the end of 2011 for putting in place an EU-wide venture capital scheme

14 IU Commitment 10

By 2014: on the basis of Commission proposals, the EU

should put in place financial instruments to attract a major increase in private finance and close the market gaps in investing in research and innovation.

15 European Council conclusions follow-up

• The Commission is invited to present proposals by the end of 2011 for scaling up the Risk Sharing Finance Facility

• During 2011-2013, we will expand the scope and scale of RSFF implementing recommendations of the RSFF interim evaluation

16 Risk-Sharing Finance Facility (RSFF) Policy Support : current state of play

• Moving towards a Portfolio First-Loss Piece for the whole RSFF (by end-2011), enabling a potential higher leverage effect on the EU financial contribution (cf. facing the level of demand until end-2013) and more support for target groups such as SMEs and research infrastructures

• Launch of a dedicated window to address research-intensive and innovative SMEs and mid-caps (early 2012)

17 After 2013?

Greater investment

in R&D

Next MFFDebt and equity

Financial instrument ?

Europe 2020 Europe 2020

18

RSFF post 2013?Innovation Credit FacilityGood practice from the Netherlands

• Most applicants for loans are young start-ups

• Strong stress on the eligibility criteria on the developmental approach

• Risk sharing

• Cooperation-to-be with EIB

19

An integrated approach for the use of financial instruments to support R&D&I

Preparing the ground for the implementation of IUC 10

e.g. debt financial instrument in future CSF

• Debt instrument will provide debt finance for risky investments in R&I activities and will cover loans, guarantees…

• Equity instrument for early and growth stages investments :

1. Support to early stage and seed investment

2. Support to the development of EU venture capital

20

Current

Programmes

(2007/2013)

R&D7FP

(DG RTD)

Innovation (i)CIP

(DG ENTR)

Future

Programme

(2014/2020)

R&D&I

CSF

EIPsInnovation Union

Towards a Common Strategic Framework

The European Institute for Innovation

and Technology

21Next steps towards a CSF

• Follow up: – Analysis of contributions by Commission – Major event to conclude consultation (10 June 2011)– Inputs to preparation of Commission proposals

• Commission proposals:– for post 2013 EU budget (June 2011)– for the Common Strategic Framework (by end of 2011)

• Legislative decisions on the Common Strategic Framework by the Council and European Parliament (2012-13)

=> Common Strategic Framework (from 2014)

22Lessons learnt from current EU R&I funding

• Cross-border pooling of resources

• More competition in research

• Focus on Excellence

• Wide range of training possibilities

• Raise of the international attractiveness of EU R&I

• Fragmentation

• Need for further simplification

• Better strategy for innovation

• Need to focus resources to address grand challenges

• Broaden participation

• Clearer agendas

23

Thank you for your attention