brabo ventures trend watch

rend Watch, 2008 (1)

Most of the meetings on innovation financing tackle the problems on the demand side, whereas it is equally important to analyze the problems faced by investors on the supply side.

For some years, the equity gap or “valley of death” is referred to as the scapegoat in the innovation financing industry. This equity gap was the problem for European early stage ventures to bring innovation to the market. Eventually the problem got heard and in various Western European markets, seed financing facilities emerged (TechnoPartner in the Netherlands, HighTechGruenderFonds in Germany, Arkimedes in Belgium …).  Still, the risk profiles of many of the investors remained the same as well as the quality or investor readiness of the entrepreneurial projects. Keeping the venture capitalist with cash packed wallets at the door.

A general finding extracted from various meetings, explicitly touched upon several of these issues:

• There are enough financial resources to finance innovative projects;
• There is a general lack of good entrepreneurial projects with good qualitative teams.

Explicitly for early stage ventures starting to expand and commercialize their business, one agrees that the success is to a very large extend related to the managerial capabilities of the management team.  It is the team, and more importantly the CEO of a company who needs to execute and deliver what is written in the business plan. He/she writes the business plan about a unique offering based on a bullet proof business model that he/she needs to understand and manage. And exactly these elements seem to be hard to find.

Now, why is the importance of a business model undervalued?

There is a widespread awareness about the importance of innovation. At the European Commission level, it is an important element of the Lissabon agenda where it has been identified as the fuel for economic growth and a necessary ingredient to make Europe’s knowledge based economy more competitive. And let there be no doubt about it, innovation in all its forms, product innovation, market innovation, financial innovation, is important. Originally, innovation is more related to process and product innovation. Herewith referring to research and technology development (RTD) as the source where innovation originates. Such innovations are mostly innovations where the intellectual property can be protected. As such, innovation goes parallel with patents. Once the innovation is protected, then one starts exploiting the opportunity by transferring it to the market, building a business plan and developing a business model.

Not going against this, it is equally important to relate the many RTD projects the sooner the better with some key aspects of business life in order to reap the rewards of innovation and to be able to monetize based on a market problem or market need. This means a quicker integration of business planning activities, building of a business models and a more focused market oriented technology transfer combined with business training, mentoring, and securing investor readiness when it needs to be presented to investors.

In particularly for RTD projects reaching the commercialization phase, it is believed that too little time is put in working out a solid business model that supports the project. In general too much is expected from the technology; too much is expected from a patent.

It is true that different investors judge differently about an innovation. In particular, when corporate venture capitalists are at the supply side then patents and technologies are having an increased importance in the selection criteria. Because corporate venture capitalists tend to focus a bit more on the quality and the strategic importance of technologies rather than business models.

Other private investors, generalist venture capitalists or ‘opportunistic’ venture capitalists however, which represent the bulk of the market, focus more on execution capabilities and the competences of the management team and the offered market opportunity glued to a solid (proven) business models

Unfortunately, investors are still too little understood. As such we failed to equally appreciate the importance to understand the ability to build a solid business model that is able to position, manage and control these technologies/patents.

More about ENNFI: The ENFFI project is part of the Europe INNOVA initiative, which is the focal point for innovation networking in Europe. Europe INNOVA aspires to inform, assist, mobilize and network the key stakeholders in the field of entrepreneurial innovation, including firm managers, policy makers, cluster managers, investors and relevant associations. Europe INNOVA builds upon Gate2Growth and PAXIS and further develops the approach of networking innovation players, by combining analytical expertise with grass roots experience.

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