Innovation chief: Venture capital can turn science into commerce

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Europe produces more research papers than the US or Japan but needs an influx of venture capital to turn inventions into commercial success, according to Máire Geoghegan-Quinn, EU commissioner for research, innovation and science.

Geoghegan-Quinn cited the example of the MP3 standard for compressing audio files, which was invented in Europe but commercialised in the US.

"This has to change. If we could deliver a large and harmonised single market for services, together with a European venture capital market, just imagine how much we could achieve," she said at the American Chamber of Commerce in Brussels today (18 February).

The commissioner's voice adds to growing clamour to link public and private venture capital funds in a concerted effort to boost innovation in Europe.

Private sector investors and high-level policymakers will meet in Brussels on 2 March to discuss ways of boosting long-term venture capital investment in the EU. However, risk adversity and limited experience in fund management mean Europe remains a tough place for innovative businesses to raise money.

The 2 March event, hosted by the Private Equity and Venture Capital Association (EVCA), comes the day before EU commissioners are due to discuss innovation in the context of the 'Europe 2020' strategy at their meeting on 3 March.

Venture capitalists are pushing the idea of a series of privately-managed 'funds of funds' with the expertise to attract billions of euro from international investors keen to back high-risk, high-reward companies.

The proposed mega-funds would work in tandem with the European Investment Fund, which provides risk financing for SMEs and entrepreneurs using taxpayers' money.

Innovation attracts political capital

Geoghegan-Quinn believes the political will now exists for a breakthrough on access to risk finance, now that the innovation agenda has taken centre stage for Commission President José Manuel Barroso's new mandate.

"Europe can, and we will, be a world leader in a range of sciences, including nanotechnology and biotechnology. I want Europe to be a vibrant innovation economy, a true 'Innovation Union', in which companies will want to do business and invest and where researchers from all over the world will want to work," Geoghegan-Quinn said today.

Momentum for rethinking Europe's venture capital infrastructure has been building for some time.

Risk capital was highlighted as a bottleneck by a panel of business experts brought together by the European Commission last year (EURACTIV 14/10/09), and also featured in the EU's innovation manifesto (EURACTIV 12/11/09).

The Commission is currently drafting an innovation action plan which is expected to look in detail at what can be done to help Europe compete with the US in converting research results into marketable products.

US streets ahead in venture capital stakes

Unlike the US, institutional investors in Europe – such as pensions and insurance companies – have less venture capital and, historically, are less inclined to back high-risk SMEs.

Industry sources point to success stories such as online phone company Skype, which took off thanks to venture capital investment and was sold in 2005 for around €2.43 billion. However, these examples are all too rare, and experts say Europe still needs to develop expertise amongst fund managers.

Georges Noël, director of the European Private Equity and Venture Capital Association, said public support schemes should be used to ensure that professional venture capitalists can "fulfil their role of very selectively backing the best innovation Europe has to offer".

Around 90% of venture capital in Europe is invested in SMEs, according to the association, which believes cooperation between the public and private sectors could provide a major shot in the arm for a sluggish economy.

"We are proposing a specific programme focused on attracting long-term private sector funding for European venture capital by incentivising a privately-managed 'fund of funds' to select the best European venture capital managers and sell their potential to investors across the world," Noël said.

"This programme will work in partnership with existing sources of public sector finance, like the European Investment Fund, and will serve to broaden the current venture capital investor base," he added.

The 'fund of funds' could enable large banks, pension funds and insurance companies to channel investment to promising start-ups while spreading their risk. They may also develop into specialised funds targeting areas like clean technology and biotechnology, although that remains to be worked out.

The EU's newly-installed innovation commissioner, Máire Geoghegan-Quinn, listed venture capital amongst a series of bottlenecks to innovation in Europe when she briefing journalists on her first day in the job (EURACTIV 11/2/10).

Venture capital has been creeping up the agenda in recent months and was highlighted by a panel of business exports who reported on the state of Europe's innovation infrastructure for the European Commission last year (EURACTIV 14/10/09).

The European Investment Fund (EIF) provides venture capital and loan guarantees to small businesses and has stepped up its activity since the outbreak of the financial crisis.

  • 2 March: Private Equity and Venture Capital Assocaition (EVCA) hosts a meeting on mobilising funds for innovation.
  • 3 March: European commissioners meet to discuss future innovation policy in the context of the EU's '2020' strategy.

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