Why investors and public agencies need each other, by EUREKA chairman Okan Kara
5 September 2012
Austria
You might not know EUREKA yet, but for European start-up entrepreneurs and researchers it is the open door to success. The initiative unites agencies coming from 40 countries in Europe, promoting international research through the support they offer to innovation players, allowing them to bring the results of cutting-edge science to the market. An example of it is mp3, resulting a EUREKA project involving engineers from five different European countries.
“One of our priorities for EUREKA is addressing the innovation financing gap. In this respect, we aspire to develop a dialogue platform with the European venture capital scene”, says Kara.
“Our Investors Shop events, (the next one taking place in Istanbul in October) have allowed for start-ups originally financed by public agencies to get in touch with investors and business angels who can open the right doors and put money on the table. For example, as a result of one of the Investors Shops organised, Videntifier, an Icelandic company specialising in forensics, was spotted by Arinco, an investment company from Holland.”
“This is encouraging as in difficult times it is getting harder for small businesses and start-ups in the high-tech sector to find cash for development at early stage,” says Kara. “Investing in a new business, and even more developing a new technology, is always risky, this is why investors and public funding agencies need each other.” In Europe, this risk is often compensated by the action of European Union funds and national public funding agencies, like the ones regrouped in the EUREKA network.
After the earliest stages of product development are completed a start-up will need more funds to take its new technology onto the market. This is the final obstacle to cross before profitability. Still, at this stage, an entrepreneur can struggle to find support, what is generally called a “financing gap”. Public organisations now look into closing that gap, by linking with private investors, and tailoring finance instruments generally regrouped under the name of “second round funding” used to re-fund the companies and research projects that have already proven to be successful after having received public support for the first time.
“I could tell you about the case of IMSYS Technologies AB, a Swedish fabless semiconductor company,” says Kara. “Imsys Technologies, found initial capital via EUREKA funding in a technological project development. Once the technology was ready, Imsys obtained a major investment from Nordic venture fund Creandum AB, and Industrifonden, one of the leading venture capital organisations in Sweden.”
Kara explains: “specific public funding programmes are designed to give businesses the little push they need to reach consumers. A European funding platform such as EUREKA acts as a precursor in putting together such financing instruments or in fostering the necessary networks between public players, companies, and private investors.” For each R&D project financed within EUREKA, one euro of public funding is completed by two euros of private funds.
One of EUREKA’s programmes is called Eurostars, it was specially created to support small and medium size companies in the high-tech sector, and is co-financed by the European Commission. It has been so far the most successful into attracting investors.
“Eurostars participants are often backed at a certain point by venture capital,” says Kara “Crossject, a French biotech start-up has been for many years part of the portfolio of Gemmes Ventures, a VC specialised in early stage funding. Crossject recently received funding from Eurostars allowing it to sell thousands of units of needleless injectors in two years: a game changer for the pharmaceutical industry. Another example is the one of FlexGen, a spin-off from a Dutch university, which is using technologies developed by the MIT and the aerospace industry to analyse genomes faster and cheaper than anybody else. The fact that they have been backed by public funds gave them the credibility to get the rest of the money they needed from private investors. Finally, Mendeley, a web-based start-up, received its Eurostars funding more or less at the same time as it was starting to be financed by Stefan Glänzer, the former executive chairman of Last.fm.”
“These are just a few examples of a positive trend: using private funding to finance EUREKA and Eurostars projects. Present, and what is more important, future cooperation among all the organisations providing financing, from public funding agencies to banks, private investment, venture capital, and business angels, is needed to address the innovation financing gap and bring the innovation faster to the market.”
Okan Kara and his team, who chair EUREKA this year on behalf of Turkey, like to think of EUREKA as a platform for “coopetitive innovation”. The concept of coopetition, coming from economic science, refers to the higher value created from the cooperation between natural competitors, if compared to the value created without collaboration.
“One of our priorities for EUREKA is addressing the innovation financing gap. In this respect, we aspire to develop a dialogue platform with the European venture capital scene”, says Kara.
“Our Investors Shop events, (the next one taking place in Istanbul in October) have allowed for start-ups originally financed by public agencies to get in touch with investors and business angels who can open the right doors and put money on the table. For example, as a result of one of the Investors Shops organised, Videntifier, an Icelandic company specialising in forensics, was spotted by Arinco, an investment company from Holland.”
“This is encouraging as in difficult times it is getting harder for small businesses and start-ups in the high-tech sector to find cash for development at early stage,” says Kara. “Investing in a new business, and even more developing a new technology, is always risky, this is why investors and public funding agencies need each other.” In Europe, this risk is often compensated by the action of European Union funds and national public funding agencies, like the ones regrouped in the EUREKA network.
After the earliest stages of product development are completed a start-up will need more funds to take its new technology onto the market. This is the final obstacle to cross before profitability. Still, at this stage, an entrepreneur can struggle to find support, what is generally called a “financing gap”. Public organisations now look into closing that gap, by linking with private investors, and tailoring finance instruments generally regrouped under the name of “second round funding” used to re-fund the companies and research projects that have already proven to be successful after having received public support for the first time.
“I could tell you about the case of IMSYS Technologies AB, a Swedish fabless semiconductor company,” says Kara. “Imsys Technologies, found initial capital via EUREKA funding in a technological project development. Once the technology was ready, Imsys obtained a major investment from Nordic venture fund Creandum AB, and Industrifonden, one of the leading venture capital organisations in Sweden.”
Kara explains: “specific public funding programmes are designed to give businesses the little push they need to reach consumers. A European funding platform such as EUREKA acts as a precursor in putting together such financing instruments or in fostering the necessary networks between public players, companies, and private investors.” For each R&D project financed within EUREKA, one euro of public funding is completed by two euros of private funds.
One of EUREKA’s programmes is called Eurostars, it was specially created to support small and medium size companies in the high-tech sector, and is co-financed by the European Commission. It has been so far the most successful into attracting investors.
“Eurostars participants are often backed at a certain point by venture capital,” says Kara “Crossject, a French biotech start-up has been for many years part of the portfolio of Gemmes Ventures, a VC specialised in early stage funding. Crossject recently received funding from Eurostars allowing it to sell thousands of units of needleless injectors in two years: a game changer for the pharmaceutical industry. Another example is the one of FlexGen, a spin-off from a Dutch university, which is using technologies developed by the MIT and the aerospace industry to analyse genomes faster and cheaper than anybody else. The fact that they have been backed by public funds gave them the credibility to get the rest of the money they needed from private investors. Finally, Mendeley, a web-based start-up, received its Eurostars funding more or less at the same time as it was starting to be financed by Stefan Glänzer, the former executive chairman of Last.fm.”
“These are just a few examples of a positive trend: using private funding to finance EUREKA and Eurostars projects. Present, and what is more important, future cooperation among all the organisations providing financing, from public funding agencies to banks, private investment, venture capital, and business angels, is needed to address the innovation financing gap and bring the innovation faster to the market.”
Okan Kara and his team, who chair EUREKA this year on behalf of Turkey, like to think of EUREKA as a platform for “coopetitive innovation”. The concept of coopetition, coming from economic science, refers to the higher value created from the cooperation between natural competitors, if compared to the value created without collaboration.