Aside from the main innovation rankings, The Global Innovation Index 2020: Who Will Finance Innovation? presents a stellar lineup of
15 outside chapters with contributions from prominent experts from academia, industry and government. This article gives a quick introduction to each outside chapter of the report.
Chapter 2: Sources of Funding Innovation and Entrepreneurship
Peter Cornelius, AlpInvest Partners
Many of the world’s largest and most innovative tech companies, including Amazon, Apple, Facebook, Google, Microsoft, and Tencent, have initially been backed by venture capital (VC), helping explain why this form of funding has attracted substantial interest among researchers and policymakers alike. However, over the past couple of decades, the financing of innovation has been subject to significant changes as new funding sources have emerged and important advances in financial technology (fintech) are transforming the way capital is intermediated. These developments affect companies in all stages of their life cycle.
In developing a taxonomy of funding sources for innovation, this chapter focuses especially on the start-up phases when young firms face particularly severe financing challenges, paying particular attention to non-traditional forms of entrepreneurial finance.
Chapter 3: Sovereign Wealth Funds and Technology and Innovation Investing in an Era of Mounting Uncertainty
Jerome Engel, University of California, Berkeley; Victoria Barbary, International Forum of Sovereign Wealth Funds; Hamid Hamirani, Ministry of Finance Oman; and Kathryn Saklatvala, bfinance
Sovereign wealth funds (SWFs) have become a major factor in technology and innovation investing globally. They have emerged as important sources of capital to traditional venture capital firms and increasingly, as direct investors. SWFs differ from many other investors in their character, risk tolerance, priorities, and time horizons. Understanding their characteristics and behaviors is increasingly important for all participants in the technology and innovation investing marketplace.
This chapter explores both the “what and why” of current trends in SWF technology investing and their implications for the future.
Chapter 4: Government Incentives for Entrepreneurship
Josh Lerner, Harvard Business School
In the dozen years since the global financial crisis of 2008–2009, there has been a surge of interest on the part of governments in promoting entrepreneurial activity, largely by providing financing. This chapter explores these policies, focusing on financial incentives to entrepreneurs and the intermediaries who fund them.
Chapter 5: Financing “Tough Tech” Innovation
Ramana Nanda, Harvard Business School
Venture capital investment across the world has surged in the past two decades but has been disproportionately directed towards a subset of innovations that can generate returns in a short period of time. More complex technologies that are expensive and time-consuming to de-risk have received relatively less capital in recent years, despite great societal need. This is particularly true for nascent technologies building on new science, but without a well-defined market—so-called “tough tech” ventures.
This chapter explores the challenges and potential of financing of “tough tech” ventures, including in the context of government’s role as a customer in de-risking investments.
Chapter 6: Shaping the Unknown with Virtual Universes–the New Fuel for Innovation
Pascal Daloz, Patrick Johnson, and Sébastien Massart, Dassault Systemes; Pascal Le Masson and Benoît Weil, Mines ParisTech, PSL Research University
Handbooks in finance, as well as literature reviews, recall that financing innovation and financing productivity investment differ in their level of uncertainty. In this time of “disruptive innovation” in the context of multiple socioeconomic and technological changes—such as energy transition, aging, and digitalization—it is tempting to consider that innovation dynamics tend to be characterized by an increase in uncertainty.
Therefore, it is critical for innovation success to deal with these initially unknown situations and shape them in a beneficial direction.
This chapter deals with the role of virtual universes as a keystone technology in “shaping the unknown” to unlock a collective culture of design and spur innovation.
Chapter 7: From Financial Growth to Generative Growth: A Renewal of Private Equity
Laure-Anne Parpaleix, Kevin Levillain, and Blanche Segrestin, Mines ParisTech, PSL Research University
Since its emergence, private equity has been used as a powerful tool to support economic growth, especially through financing start-up companies, whose difficulty in accessing investment—a so-called “equity gap”—was thought to be a major obstacle to innovation. Nowadays, however, the nature of innovation processes has deeply changed, and start-ups are not the only firms upon which rests the imperative of inventing new products and services, as well as new knowledge and technologies. All mature companies, especially middle market ones, are indeed at the heart of a dilemma between making more of the same thing—notably through repeated acquisitions, operational scalability, or product extensions—at the risk of growing obsolete, and regularly renewing their activities through the development of (radically) new concepts.
This chapter examines how the current private equity rationale tends to corner these companies into the first kind of “aggregative growth”, as it commonly mitigates risks in the short term. It highlights that what these companies lack the most is not equity: they lack investors who can support their regenerative strategies in the long run. Therefore, this chapter conceptualizes a new class of investment strategies that is emerging to support this latter kind of growth, which we coin as “generative growth”.
Chapter 8: Filipinnovation: Financing Science for the People
Fortunato de la Peña, Department of Science and Technology, Philippines
The Philippines has long experienced regional disparity in access to major resources that could potentially fuel innovation and socioeconomic growth within the country. However, these regional differences, if synergized through efficient transport and communication infrastructure, can be transformed into an opportunity to stimulate creativity and innovation.With local communities having unique challenges of their own, it is necessary to generate niche-adapted solutions that capitalize on local knowledge and resources. In addition, each region’s challenges—and even their advantages—can serve as lessons that other regions may learn from and possibly apply to their own problems.
In this chapter, we describe the challenges that the Philippines has faced in pursuing regionally-inclusive innovation and the collaborative efforts to address them, through a whole-of-government approach called Filipinnovation.
Chapter 9: Financing Research, Development and Innovation: The case of the Czech Republic
Karel HavlÍcek, Silvana Jirotková, Tomáš Holinka, and Martin Hronza, Ministry of Industry and Trade, Czech Republic
The financing of innovation in the Czech Republic has undergone many changes. A key strategy approved by the government in 2019 was the Innovation Strategy of the Czech Republic 2019–2030. It aims to support research, development, and innovation in a country that will be driven by the ambition to become one of the innovation leaders of Europe by 2030— under the motto “The Czech Republic: The Country for the Future”. The Innovation Strategy of the Czech Republic contains nine pillars, the implementation of which should help to maintain performance in the face of increasing global competition. The financing of research and development is only one of the pillars, which indicates the significant complexity of providing public R&D&I support at the national level.
Using this framework, this chapter assesses the process of support for research, development, and innovation in the Czech Republic.
Chapter 10: Financing Innovation in Brazil
Robson Braga de Andrade, National Confederation of Industry–Brazil (CNI)
During the last few decades, Brazil has built a relatively broad system of support for innovation. Policies implemented in the country range from direct support to scientific research—carried out mainly by universities and public research institutes—to tax incentives and subsidized credit for innovative companies. Considering the importance of financing innovation, the Business Mobilization for Innovation (MEI), created and coordinated by the National Confederation of Industry—Brazil (CNI), has innovation financing as one focus for its agenda. The MEI brings together Brazilian business leaders, with the aim of bringing innovation to the center of business strategies and increasing the effectiveness of innovation policies in the country.
In this chapter, we discuss support and financing mechanisms for innovation in Brazil, their main challenges, and how the country can overcome them.
Chapter 11: Financing Innovation in India: Challenges and Opportunities
Deepanwita Chattopadhyay, IKP Knowledge Park
India made significant progress in the last decade in building the country’s innovation ecosystem. With around 50,000 start-ups, it is today the third-largest start-up economy, after the United States of America and the United Kingdom.
This chapter discusses the role played by governmental agencies, venture capitalists (VCs), and other ecosystem enablers in promoting and funding innovation in India.
Chapter 12: Israel’s Challenging Transformation From Start-Up Nation to Scale-Up Nation
Yaron Daniely, aMoon Venture Fund
Israel is often hailed as a global leader in innovation, decorated with top rankings in annual reports, and celebrated for its extensive investment in R&D as part of its national policy. The elements contributing to this phenomenon have been discussed and debated extensively, with some consensus pointing to the importance of a unique entrepreneurial culture, a constructive triple-helix collaboration of the public, private and non-for-profit (academic) sectors, and the abundance of a well-educated and skilled workforce. Israel enjoys an unusual richness of risk capital, which was initially spurred and is continuously supported by public sources, as well as the more recent establishment of hundreds of local R&D centers by multinational corporations – all attempting to exploit the profusion of technological innovation that Israeli entrepreneurs are generating with considerable efficiencies.
This chapter explores how – under the cloak of success, and the indulgence of celebrity – brews the threat of an innovation ecosystem that fails to mature into a sustainable, scaled economy for the Start-Up Nation of Israel. With only rare exceptions limited to a few narrow disciplines, Israel has been unsuccessful in producing a mature industrial ecosystem with large, fully integrated corporations of its own. The long-term sustainability of such an innovation economy is unclear, and there is a dire need to ensure that at least part of the economic impact derived from the innovation engine is funneled into broad and strategic scaling initiatives.
Chapter 13: Equity Bank: Financing Innovation in Kenya
James Mwangi, Equity Group Holding Plc
Equity Group Holdings is a Pan-African financial services group based in Nairobi, Kenya, which now enjoys the position of the largest financial services and banking group in Eastern and Central Africa by market capitalization. Equity Group finances innovation in Kenya directly and indirectly through debt financing, entrepreneurship education, retained earnings, and government financing. The African Guarantee Fund has noted that capital support is an integral part of actuating innovation in Kenya. Equity Group’s vision for the future of innovation financing is to close the small and medium-sized enterprises (SME) financing gap in Africa, raise private and public gross domestic expenditure on research and development (GERD) as African economies shift from being primarily commodity-driven to innovation-driven economies, finance integration of African SMEs into global value chains to accelerate adoption of 4th Industrial Revolution technologies, and catalyze the development of industry clusters.
This chapter discusses Equity Group’s biggest challenges and solutions for financing innovation in Kenya, as well as its vision for the future of innovation financing in Africa, how it measures the impact of innovation financing, and its lessons learned and policy recommendations over more than two decades of expertise in microfinance.
Chapter 14: Abu Dhabi: Innovation at the Heart of a Modern, Diversified and Sustainable Economy
Tariq Bin Hendi, Abu Dhabi Investment Office
The United Arab Emirates (UAE) is a federal republic of seven emirates—or states—of which Abu Dhabi is the capital and home to most of the country’s oil reserves. The country has experienced transformational growth since the discovery of oil and gas in the second half of the 20th century. The revenue from natural resources has driven economic progress and funded ambitious government projects while maintaining a low taxation environment that attracts investors and talent from around the world. The task facing Abu Dhabi—and commodity-exporting nations in general—has been responsibly managing this finite resource to build a sustainable economy for the next generation.
Abu Dhabi’s response has been an ambitious program of economy building projects, using natural wealth as the foundation for long-term, sustainable development and steadily preparing its economy for a post-oil future. Over the past decade, innovation and knowledge-intensive industries have increasingly taken center stage in Abu Dhabi’s economic vision. Those efforts are also now delivering results.
This chapter discusses how—as Abu Dhabi considers how to build further on its achievements—its approach to leveraging oil and gas revenues to accelerate other sectors offers a valuable case study for other resource-based economies.
Chapter 15: Intellectual Proporty as an Asset for Financing Innovation
Pippa Hall, United Kingdom Intellectual Property Office
Intellectual property (IP) assets have long been recognized as assets. In the United Kingdom (U.K.), evidence suggests that there are fewer than 5,000 IP valuation reports commissioned per annum, and the market is somewhat underdeveloped versus what might be considered optimal. This chapter provides research findings from projects the U.K. Intellectual Property Office has conducted, as well as more recent joint work with the British Business Bank.
Using evidence drawn from sources including U.K. government research into the question of IP asset valuation and current strategic discussions, the chapter suggests that, through engagement with IP owners and the banking industry, it should be possible to bring more clarity to the subject of IP asset valuation so that investors and innovators can benefit from asset value as collateral for innovation. This will benefit the wider economy through further innovation where firms are able to collateralize their intellectual property.
Chapter 16: Opportunities to Reap Financing Through IP for Innovation
Alfred Radauer, IMC University of Applied Sciences Krems
The past two to three decades have been frequently called the “pro-patent” or “pro-IP” era. This period has been characterized by steadily increasing patent and intellectual property (IP) filings with major IP offices throughout the world as well as widening ways of using IP in business contexts. In a transition towards knowledge-based economies, this development follows the observation that the value of firms is increasingly determined by intangible assets, such as know-how, brands, or technological skills.
This chapter examines the use of IP as a tool that supports the financing of a firm as well as a tool to directly generate money that can fund and finance further innovative activities.