Innovation Europe > News > Innovation blog > The pre-competitive research conundrum

The new Innovation Commissioner in Brussels Mrs Geoghegan-Quinn has only had a few weeks to get her feet under the table, but her initial thoughts about the EUs innovation strategy are expected to feature prominently in the battle plan of the new Commission to be presented early in March.

Commission President Barroso has flagged up innovation as a key priority for getting the European economy back on track by 2020, yet there are still substantial innovation issues that have yet to be resolved.

The EU’s E50bn euro Framework Research programme FP7 is the biggest publicly funded research program on the planet. Yet there are major issues surrounding its effectiveness and impact, and we continue to hear the same complaints about the fruits of EU research not being converted into marketable products - if the Americans can do it, why can’t we Europeans.

The mantra of EU-funded research however has always been to focus on ‘pre-competitive research’. What this thinking has failed to take into account is the chasm between a successful research project and a commercially viable product.

Experienced voices from the industrial community are now calling upon the Commission to adjust the focus of its research funding and start financing  “demonstration projects”.  In other words, fund the bridge that will put research into practice and prove its potential as a marketable product or service.

In her first public statements, the Innovation Commissioner appears to have absorbed the thinking of the previous administration and has been talking up the need to increase private investment in Europe of the venture capital type as the key to turning research into marketable products.

Venture capital is being touted as the magic genie, the missing link, which can plug the gap and take unproven research to the eager marketplace.

In reality, there is no shortage of venture capital or private equity in Europe in terms of global volumes. The issue is more about where these specialised investment funds choose to invest their money, and how early in the process they should start investing.

Historically, investors make more money from management buy-outs of mature companies than they do nurturing new ventures during the first five to seven high-risk years before they start to turn a profit. Top class management and marketing is as much a priority as high quality research and innovation.

Previous programmes run by the European Commission in conjunction with the venture capital industry show that early-stage investment is the highest risk sector with, historically, the lowest returns. One suggestion is that the Commission sweeten the pill by offering ‘cheap’ investment capital and part-funding some of the management time of the investors.

On March 2, Commission officials from various departments will be meeting with Europe’s venture capital industry represented by the Brussels-based European Private Equity and Venture Capital Association (EVCA) to discuss ways of improving access to venture capital for Europe’s businesses. The industry is likely to float the idea of involving the European Investment Bank and its European Investment Fund to help support a ‘Fund of Funds’ - an investment pool that will strategically target and support private venture capital funds which are successfully operating in the appropriate strategic areas.

An initiative of the venture capital industry, the meeting will hear proposals from industry to create a stakeholder taskforce to examine the issues. A white paper should be forthcoming.

Nigel Griffiths is a Brussels based writer and EU affairs consultant.