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Innovation is about the development of new solutions that meet our needs, turning technology into products for the world market. Innovation is achieved in many ways, with increasing focus on to fruits of research and development (R&D). Innovation is one solution to societal challenges such as climate change, energy scarcity and an ageing population.
When the early stages of product development are complete, a researcher still needs funds to take its new technology to the market, which is when real ‘innovation’ happens. For a business based on innovation, this is the final obstacle to cross before reaching profitability. Even at this stage, an innovative entrepreneur may struggle to find support from private investors. This is what is known as ‘a financing gap’, the result of risk-averse financial actors.
Public funding of innovation activities mainly functions as a risk-reduction instrument: supporting R&D projects which, from a market-perspective, are either too risky or do not generate sufficient revenue in the short term. Innovation-financing instruments, by acting as facilitators for co-investments, where risk is shared between different players - public and private, are excellent means to support high-risk/high-return projects.
Due to this high risk and the current post-crisis economic climate, public grants are being progressively replaced by money loans, guaranteed bank investments in innovation and other non-grant-based instruments. Innovation support instruments can take several forms and many inventive financing solutions are currently being developed at national and European level.
'PUBLIC FUNDING OF INNOVATION ACTIVITIES MAINLY FUNCTIONS AS A RISK-REDUCTION INSTRUMENT.'
The European Union has made innovation one of its priorities in terms of encouraging national investment in R&D: by 2020, 3% of the EU member states’ GDP should be committed to R&D activities. The EU plays a key role in fostering innovation through its Framework Programme for research and technological development (from 2014, Horizon 2020), but member states also support investment at a transnational level thanks to EUREKA, a platform where national funding for innovation is allocated to transnational collaborative R&D projects. Complementarities have already been established between EUREKA and the EU, through the Eurostars joint programme. Horizon 2020 already foresees the next phase of Eurostars.
EUREKA, as the European network of national innovation agencies, bringing together over 40 countries, positions itself as a key player in the further definition of the instruments that will boost European innovation in the future.