Good practices on innovation and R&D funding policies support Ukraine Knowledge Economy Seminar Kiev, April 22nd, 2008 Peter Lindholm

Financing systems in the EU 2 Capital Access Index Measures how easily SMEs can get financing Here indicated as a deviation from EU average Based on 56 indicators like: macroeconomic policies institutions finance and banking equity markets bond markets alternative sources of capital international access etc Source: Milken Institute, 2005

Key roles of public authorities 3  Ensure fluidity of the risk capital market:  Support innovation and R&D investment in SMEs;  Identify SME real demand;  Improve the legal, administrative and fiscal environment to increase the flow of equity for early stage investment;  Provide investment readiness schemes to entrepreneurs.  Invest in public/private partnership to share risk in this market;  Raise awareness on a permanent basis

Segmenting the market 4

Targeted Policies and specific tools Start-up phaseFirst financial round Subsequent financial round Seed capital fund Loans without interest and/or guarantee University and research centres spin off funds Micro-credit Public or para-public funds for creation or innovation Public grants Reimbursable loans Business Angels Seed capital fund Banks loans/Overdraft Guarantee funds Public or para-public investment funds Regional Public venture capital Public grants Corporate venturing Private venture capital Bank Loans Share subscription bonus Mezzanine Indirect supports: Pre-incubation, incubation, Nurseries and easy-in and easy-out workshops, Tutorate (coaching, mentoring, hands-on management), Legislative work (financial services, capital adequacy, etc) Integrated actions: Financial value chain, intermediation 5

Three unavoidable building blocks  You cannot force companies to innovate if they are not hungry for it. Convincing them takes time and needs success stories  Financial tools must support a policy that is understandable by stakeholders (why, what, when)  The biggest problem in implementation often is the public sector itself

Policy fact sheet : National policy- France. Finance cycle 7 FeasibilityFormulationDevelopmentLaunch Life Cycle Capital-risk Companies Capital Development Companies Seed capital Personal Loans Business Angels Self-financing OSEO Banking Competitions Research –Tax Credit Other forms of public help High Source: OSEO (F) RiskLo w

Policy fact sheet : National policy- France. Finance cycle 8

Policy fact sheet : Fiscal incentives – EU examples EU examples:  Czech Republic : The new tax regulation (2005) to deduct expenses on R&D carried out for their own needs from their tax base a major change in the Czech system which previously did not apply any indirect measures favouring R&D  Ireland : The 2004 Finance Act introduced an R&D tax credit 20 % tax credit against corporation tax complement the various direct R&D grant supports also available through the various State agencies. 9 In proportion to the level of the expenses Immediate write-off or expensing Tax credits proportional to the level of R&D In proportion to the increment of R&D Definition of the base (e.g. last two years) Measures intended to remove ceilings in the effective use of tax incentives Refundability of unused tax credits Carry-back and carry forward of unused tax credits Flow through mechanisms, i.e. transfer of unused tax credits to an eligible third party Focus on specific types of R&D Environment, health, defense, agriculture… University, SME, regional support, R&D Cooperation Indirect tax incentives Reduced corporate income taxes, exemption of capital gains taxes Reduced taxes on dividends from venture capital funding Reduced taxes for high-skilled immigrants

Policy fact sheet : The Russian Venture Company - Russia

Policy fact sheet : Greater London Enterprise - UK  Background : London’s economic development company, Commercially and constitutionally independent  Tools: GLE Development Capital; One London Business Angels; Factoring/Invoice Finance; Small Business Loan; Mentoring and Investment Readiness Programmes.  Application €750,000-7,500,000 from GLE Development Capital; €140,000-1,000,000 from One London Business Angels.  Good practices : GLE also manages a £7 million loan fund that has provided finance to over 400 start up and early stage businesses The group now supports approximately 6,500 small companies each year

Policy fact sheet : Regional support policy- Rhône Alpes

Policy fact sheet : Enterprise Ireland  Background : 8 regional offices, Staff 950, Budget 2004 Euro 260m.  Tools: investment strategy Ordinary Shares – High potential start-ups (HPSU) Preference Shares (with conversion option) Preference Shares – (Expansions/Developing companies) Normally 5 year Term with low coupon rate Redemption after 5 years  Application EI will typically take up to 10% of the share capital; Balance of funding in the form of grants and/or preference share – normally on a 50/50 basis;  Limits: The level of EI funding determined by the potential level of exports and job creation;  Good practices : Sectorally focused and regionally based

Thank you for your attention ! QUESTIONS ? For more information, contact : Peter LINDHOLM Lindholm-Consult Cell: Skype: p.lindholm1