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IRDAC Opinion on Venture Capital

In January 1997, IRDAC (the European Commission's Industrial Research and Development Advisory Committee) organized a Round Table on Venture Capital which brought together some 16 representatives from venture capital organizations and enterprises, both large and small. The Rou...
In January 1997, IRDAC (the European Commission's Industrial Research and Development Advisory Committee) organized a Round Table on Venture Capital which brought together some 16 representatives from venture capital organizations and enterprises, both large and small. The Round Table, organized at the request of the European Commission, resulted in the adoption of an IRDAC Opinion on Venture Capital, submitted to the European Commission at the beginning of May.

The competitiveness of Europe depends to a large extent on the creation and growth of dynamic companies. Finance, in particular venture capital, is a key ingredient in the success of these companies. The review of the European venture capital situation conducted by IRDAC, however, revealed that, although the situation in Europe with regard to venture capital has improved considerably over the last ten years, there is a worrying trend concerning investments in high-technology areas and start-up companies. Venture capital investors in Europe are reluctant to get involved in financing innovation and RTD, due primarily to the poor return on investment.

Public authorities, at both national and EU level, can contribute to "bridging the gap" between venture capital investors and the high-tech sector. This can be done, for example, through the creation of exit mechanisms (such as EASDAQ) and measures aimed at improving the relationship between venture capitalists and high-tech firms. Special attention should also be given to the issue of technology rating (training of experts).

In order to ensure a closer link between venture capital organizations and the Community RTD projects, IRDAC believes that there is a need for a readjustment of current practices. The preparation of the Fifth Framework Programme is seen as presenting an excellent opportunity for this. With regard to the evaluation and selection criteria for RTD projects, IRDAC suggests that each project proposal should include an exploitation plan indicating, amongst other things, the (future) market potential for the RTD result. It is also proposed that venture capital organizations be encouraged to become involved at the early stages of a project, either as evaluators or as "sounding boards", accompanying projects during the implementation phase.

IRDAC also points to Intellectual Property Rights (IPR) as an area needing special attention. In general, venture capitalists are reluctant to invest in projects which contain "non-exclusivity" clauses as far as ownership of results is concerned. Current rules relating to IPR need to be revised with this in mind.

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