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Investment for Innovation

MichaelBy Michael Collins on 18 December 2017
Investment for Innovation

“Innovation is a beacon of hope for Europe – policymakers are committed to supporting it.” - D. Riquet, MEP, Chairman of the Long-Term Investment and Reindustrialisation Intergroup of the European Parliament

Dominique Riquet’s words set the tone for a lively debate with founders of some of Europe’s most dynamic companies and their investors as part of Invest Week. Looking at how Europe can stimulate more investment into innovation, Invest Europe and the Long-term Investment Intergroup were joined by entrepreneurs Stan Boland, the founder of FIVE AI developing mapping for driverless cars; Dan Kieran, co-founder of Unbound, a crowdsourcing platform that is shaking up publishing; and Hermann Hauser, the serial entrepreneur and co-founder of Amadeus Capital Partners - now also chair of the High Level Expert Group advising the European Innovation Council.

It is companies like these that are contributing to investor interest in Europe – 41% of those questioned for the Invest Week Global Decision Makers Survey said increased innovation has made Europe a more attractive investment destination. Moreover, over a third of respondents were attracted by Europe’s improved start-up ecosystem.

But while Europe has raw entrepreneurship, it also has challenges. “Scaling up is one of the biggest issues today,” said Pascal Lagarde, executive director at bpifrance, the ​French public investment bank. His view was echoed by Jyrki Katainen, the European Commission Vice-President, who recognised that while start up numbers are on a par with the US, European companies do not have access to the same resources to grow into global champions.

Part of the issue is capital. Fundraising for venture capital reached a new high of €6.4 billion in 2016, according to Invest Europe data, yet still fell well short of the $41.6 billion raised by US funds last year*. The entrepreneurs had suggestions – either the European Investment Fund’s capacity should be much larger, or pension funds should be directed to allocate capital into risk investment, Boland argued. “We do have a lot of capital in Europe, it’s just invested in the wrong things,” he said.

Talent was also a concern. According to Boland, nine out of ten PhD students from top European universities leave to work in the US. Often overlooked is the need to inspire entrepreneurs who are not motivated by wealth. “The greatest part of starting a business is what you learn as a person,” Unbound’s Kieran said. “Young people want to work for a company that has social values too.”

And of course, it’s not only start-ups that are sources of new ideas. “Don’t forget that innovation is coming from mid-cap companies too,” said Ulrich Hanfeld who, with the support of OpCapita, led a turnaround at German clothing retailer NKD through better-placed stores and a smarter and more responsive supply chain.

Flexible policy can support established businesses and entrepreneurs alike to be disruptive and develop new technologies. Hauser, a co-founder of microprocessor company ARM which puts chips in most smartphones, highlighted AI, blockchain and synthetic biology as three mega-trends that will be sources of innovation over the next five years. In fast-moving sectors like these, regulation needs to be agile enough to allow experimentation that will help European take a lead globally.

The European Commission appreciates this - “Regulators need to be ahead of the curve on emerging technology,” Katainen said. “We need the advice of entrepreneurs on how best to do this.”

Europe has a solid track record on funding innovation through grant and lending schemes. Existing projects, such as Horizon 2020 and the European Fund for Strategic Investments, have provided billions of euros to new businesses. The good news for scale ups is that investors are increasingly turning to European private equity and venture capital which can provide the long term investment and active operational management that they need to realise their full potential.

* NVCA data

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