1. December 17 th 2011 Maximilian Foedinger This Project is funded by the European Union Joint Support Office (JSO) for Enhancing Ukraine’s Integration into the European Research Area (ERA) EuropeAID/127891/C/SER/UA Ukraine This Project is implemented by an ECORYS-led Consortium Loans, Grants and guarantee Public finance for innovation

2. The Innovation Problem B1B1 B S $ A1A1 C1C1 A Science Business Public Support

3. Classification

4. Public Financing – Public financial instruments may come from the central government or from local and municipal level. It may be operated by the administration itself or via agencies and state owned banks http://www.ffg.at/ or http://www.erp-fonds.at/ http://www.ffg.at/http://www.erp-fonds.at/ http://www.landoberoesterreich.gv.at

5. Private Capital Gestion Inception Prototype Rollout Rapid growth Expansion Maturity Angel Financing Venture Capital Corportate Investors Banks IPO, Acquistion Founders Revenue Time

6. Mixed forms Pre – commercial Commercialisation Process Commercial Phase Public Financed Mixed Financed Private Financed

7. Austrian Model AplusB Degree of innovation high Low Degree of maturity Spin-off economic benefit Business Angels revenue/ earnings Venture Capital Business incubation

8. Instruments for Public authorities Instruments GrantsLoansGuarantees Tax incentives

9. Grants Financial grants 3rd party grants In kind grants

11. Guarantees Institutional guarantees (for banks) Guarantees for private equity

12. Tax incentives Depreciation Increased depreciation Accelerated depreciation Decreased income tax Tax holidays on Inputs

13. Grants Grants are one of the most popular instruments in stimulating innovation. Most prominent is here EU‘s FP7 were grants can reach 75% of the projects sum – (on some components even 100%) Grants may be given to – Private entities – AND public entities (e.g. to run an public owned company)

14. Type of ProjectTechnologyOrganisation Max. amount per project partner € 30.000€ 15.000 Max. amount per project Depending on number of partners € 45.000 EmployeesEntrepreneurs and minor stakeholders of companies Max. per/h€ 87€ 35 Upper Austrian Cluster Grants overview

15. Research institutions Service provider for project management Service provider for other activities than project management Eligible costs are Staff Material other costs Eligible are staff costs for maximum 7% of the project amount Eligible are staff costs The daily fee has to be in the usual range and is limited with € 1.050 per working day Upper Austrian Cluster Grants Service Providers

16. Type of projectsUsual maximum Exceptional maximum Project coordination€ 15.000.-€ 20.000 Project partnership€ 7.000.-€ 12.000 Contract negotiation for project coordinators € 1.000.- Supporting Grant schemes FFG 7th Framework support

17. In kind grants Characteristics of in kind grants are that instead financial funds, services or goods are given Here the concept of the „innovation assistant“ can be used as an examples. Other examples are: premises, administration staff, laboratories, communication etc... In kind grants may cover 100% of the in kind contribution or a smaller percentage

18. Innovation Assistant Basic Increasing of innovation potential by using young graduates from universities for SMEs Duration: 2 years Support through external consultant for 13 days Support by CATT with additional training for the Innovation assistant

19. 3rd party grants Characteristics of 3rd party grants are that grants are not directly given to grant applicants. This grants are given to institutions e.g. Regional development funds, incubators, Chambers etc... The institutions provide assistance to their members (chamber of commerce = institutional approach) or organisations with in their region (regional or municipal development agencies = regional approach) via service providers

20. Example: Innovation Voucher System State (MOF, MOE) State (MOF, MOE) Operating Agency 1 Operating Agency 2 Operating Agency 3 Operating Agency 4 Service provider 1 Service provider 2 Service provider x Group Application

21. Limitation (EU practice) De minimis Criteria Small companies who have received in excess of €200,000 funding in the previous 5 years are not eligible to apply for an Innovation Voucher. No Funding

22. Loans Loans may be operated directly by governmental bodies but more frequently the are operated by: Innovation Agencies Special state owned banks Commercial Banks Loans may be targeted to specific groups of companies like SMEs, innovative companies, start ups, companies with rapid growth as example Loans should have favourable conditions in terms of collaterals, interest rates and terms

23. ERP loan for Innovative Companies Who is eligibleExisting companies having production or research facility in Austria What is eligibleProject with high degree on innovation especial Bio tech, Energy and environment technologies Type of supportloan VolumeEUR 100.000 up to EUR 7.500.000 Term6 – 15 years depending on project 3 – 5 years grace period Interest Rate0,5 % during grace period, reaming period 1,5 % Other costs0,9 % service charge

24. AWS Venture capital facility Goal:Providing Venture capital for young and technology oriented originations Target groups:Fund management companies Target investment:Start ups and companies in the first growth stage Fond Structure:Established in Austria Governance:EVCA/EVCO guideline Volume:Min. 30 Mio EUR AWS contribution:10% -30% Exit:10 – 15 years

25. Mezzanine Capital Mezzanine capital, in finance, refers to a subordinated debt or preferred equity instrument that represents a claim on a company's assets which is senior only to that of the common shares. Mezzanine financings can be structured either as debt (typically an unsecured and subordinated note) or preferred stock.

26. Operated loans Operated loans are programs from federal, regional or municipal authorities operated by commercial banks Characteristic of this loans are the strictly targeted group of applicants, the conditions less then for commercial loans. Banks have a service fee and a margin on the interest rate and share losses up to 100% in case of default

27. Guarantees Guarantees may be categorised into two major groups Guarantees for banks loans Guarantees for private equity Guarantees for bank loans are aimed to make loans accessible for companies that have limited possibilities due to the lack of collaterals or a short credit history (mainly start ups). Theses guarantees enable companies to get loans for better conditions Guarantees for private equity are targeted to attract private capital to companies that are under normal conditions too risky for private investors.

28. AWS guarantee for innovative companies Goal:Guarantees for SMEs having innovative projects Target groups:SMEs Type:Guarantees for loan investment and working capital (can be combined with grants up to 15% of loan volume) Fee:min 0,6 % p.a. Volume:Max 2,5 Mio EUR Guarantee:Up to 80% Other costs:0,5 % service charge

29. AWS Guarantee for private equities Goal:Guarantee for Venture capital from private investors Target groups:Private individuals Target investment:Start ups and companies not older than 5 years Fee:min 0,6 %p.a. and max 5%p.a. Volume:Max 1,5 Mio EUR Guarantee:50% (for high tech up to 75%) Exit:10 years min

30. Tax incentives In a paper by Gregory Tassey* stated the importance of tax incentives, but also criticised the sometime not efficient implementation. Nevertheless amongst the 10 countries with the biggest growth in R&D expenditures 6 have tax incentives like super deduction and incremental deduction. Deduction of R&D costs from tax burden or from tax base are the most simple tax incentives that my be applied. Published online: 1 August 2007 Springer Science+Business Media, LLC 2007

31. Countries compared Country Percent change R&D tax incentive Australia733.9 125% super deduction plus a 175% incremental deduction Finland510.8None Sweden286.7None Canada240.9Flat 20% credit United States201.420% incremental credit Japan165.7Flat 10% credit (15% for small firms) France138.8Incremental credit of 50% Germany97.1None United Kingdom53.6None (introduced 2002)

32. Austrian R&D Tax incentives Austrian R&D tax incentives are based on 2 pillars 50 % tax reduction to the inventor for incomes from patents (§ 38 EStG 1988) – this results in increased R&D and as well in increased number of patents. Additionally as so called Forschungsfreibetrag was introduced which allows to deduct 125% of R&D costs from the taxable profit. Under discussion was as well as increased depreciarion period for R&D equipment.

33. Structural recommendations All programs have to consist out of a basic program and specific time and/or regional and/or thematic programmes Implementing agencies must be able to operate without intervention from ministries on the operative decision Ministries have their stake in the governing body and define the strategy as well as organisational set up All programs must have a strict monitoring and auditing system in order to avoid the misuse of programs For grants a minimum availability of 3 years for loans and guarantees 5 years is recommended. Tax conditions should changed gradually.

34. Legal structure, shareholder, governance bodies, management structure and Strategic goals Funding (Revolving, limited, profit based or non profit )Working program (Target groups)Products (with regulations)Organisation (structural as well as processes)Application mechanisms (closed or open rounds)Assessment mechanismMonitoring and evaluation as well exit mechanism Set up „Innovation Financing structure“