Closing the finance gap for IPR-driven start-ups and SMEs

Topic description

Specific Challenge:

Innovative European businesses, including start-ups and SMEs, face a real problem to attract suitable financing solutions. Adequate access-to finance is widely considered a key precondition to ensure further growth and development of these companies. One of the major weaknesses of Europe with regard to innovative SMEs lies on the lack of focus on developing intellectual property (’IP’) portfolio strategies to protect their R&D investments and make them more attractive to investors, raise growth capital and remain competitive in Europe and globally.

Access to finance requires a long and costly work of promotion and exploitation of their innovations to inform and secure commitments by investors.

Companies tend to suffer from lack of financing and the decoupling between business strategies and the generation of IP assets protecting their R&D.

This leads to three major challenges for innovative SMEs:

• Without a sound IP strategy, investors will ask for higher risks premia, due to information asymmetries and the difficulty to assess the technological risk
• These companies often face the trade-off between keeping control of the capital of the business and scaling up at the price of an equity dilution;
• Delayed IP protection or liquidity shortages can result in innovations and skills flowing outside the EU

The development, protection and exploitation of the IP portfolio of innovative European SMEs, including start-ups, is a key element to reduce this information asymmetry. It should lead to ensuring alignment of interests between innovative SMEs and start-ups, IP advisory service providers and, ultimately, secure investors commitments.

An integrated approach to address this market failure in providing finance to innovative companies for protecting and exploiting their innovations in early development stages, without equity dilution, remains to be developed at European level. This is meant to encourage SMEs and start-ups to design and implement their IP strategy in order to facilitate access to finance.

Among EU and national level schemes, available support to companies is mainly financial. However, there is a clear need for significantly improving the effectiveness of the available counselling support through a more joined-up approach at EU level. The lack of coordination of existing schemes is a key driver of these informational asymmetries, causing duplications of assessment costs, and missed economies of scale.

The proposed action aims at encouraging innovative SMEs and start-ups to better exploit and promote their innovative assets, as well as building a strategic vision based on their first results that should be easily assessable by the funders.

To achieve this goal, proposals should aim at designing and running a support platform, offering smart online assistance tools that may serve as a pilot test for future bound measures of InvestEU-Advisory Hub and beneficiaries of the European Innovation Council. The platform should team up experts from different backgrounds such as patent engineers, lawyers, industry specialists, finance experts, including National Promotion and Investment Banks, in an attempt to pool their offer.

The platform could contribute to this goal by:

1. Identifying highly innovative European SMEs and start-ups and help them to define the most value-creating business strategy to better value and protect their intangible assets;
2. Identifying and mobilizing European, national and regional funding programs, public and private, to facilitate the access of these SMEs and start-ups to the shared pooled or strategic support services for the protection and enhancement of intellectual property;
3. Help identify financial guarantees, at regional, national and European level, to reduce risk levels for the financing of SMEs by European, national and regional funding programs or National Promotion and Investment Banks and financial intermediaries;
4. Create a specific database of highly qualified experts and develop (pre)certification programs for them;
5. Create a specific smart online tool that start-ups and SMEs may use to access pooled resources, consolidated expert database, funding programs information and smart online assistance tools;
6. Offering individualized support services integrating, beyond the core aspects of support (legal aspects, financing dimensions…), coaching and mentoring trough highly qualified experts and smart online assistance tools, paying special attention to women-led SMEs;
7. Reducing the cost and increase the quality of IP-driven support services offered to start-ups and innovative businesses;
8. Fast-tracking the repayment capacity of the beneficiary start-ups and SMEs by increasing investors’ interest through the acceleration of the protection of their R&D and strategic intangible assets;
9. Reducing the risk profile and increase the financial attractiveness of start-ups through the perspective of commercial exploitation of protected and intangible assets;
10. Increasing the leverage effect of intangible assets for public investors (European, national and regional funding programs) and private investors (Business Angels, VCs, banks, etc.);
11. Helping identify other financing schemes, like blended finance combining grants and financial instruments.

The Commission considers that proposals requesting a contribution from the EU of between EUR 0.5 and 1 million would allow this specific challenge to be addressed appropriately.

• Accompany at least 15 start-ups or innovative SMEs established in at least 10 EU member states or H2020 associated countries.
• Enable European start-ups and innovative SMEs to protect and enhance the value of their innovations and the attractiveness for investors.
• Contribute to de-risking access to strategic IP financing for start-ups and SME businesses by decreasing informational asymmetries.
• Increase the leverage effect of intellectual property assets of the supported SMEs and start-ups.