innovation and ppp financing productive and counter ... · pierre kladny...

InnovationandPPPfinancingProductiveandcounter‐productivemeasuresfrompublicpolicies

PierreKladny,ManagingPartneratValleyRoadCapitalandPresidentSECAforFrenchspeaking

SwitzerlandFebruary2014©

Topics

1. InnovativeStartupsandSMEsinSwitzerland,whatistheproblem?

2. CurrentstatusofSwissgovernmentalsupportforinnovation.

3. Majorhurdlesandconstraintsaheadandhowtoaddressthem.

4. Isthe(current)non‐interventionistapproachacceptable?

5. Whatareinvestmentprofessionalspromotingandhowtobepragmaticaboutit?

February19,2014 IGNITINGGROWTH:THEEMERGINGLANDSCAPEFORINNOVATIONFINANCING 2

InnovativecompaniesinSwitzerland

• Switzerlandisforyearsontopoftheinnovationbest‐in‐classlist.

• Withonly3.6%ofyoungpeopleunemployed,Switzerlandenjoysaverycomfortableposition.

• Theentrepreneurialratio(6%)isslightlyhigherthanEuropeanaverage(5.4%)butnotsignificantly.

• Withnearly2%ofGDPinvestedinacademicR&D(CHF9bn/year),Switzerlandenjoysastronggovernmentalsupportforinnovationatacademiclevel.


InnovativecompaniesinSwitzerland(2)

• Innovativeentrepreneurscreateeveryyearabout2’000companies,whichcanbeclassifiedas“high‐tech”.

• Thedepletionrateisroughly50%after5yearsofexistence.

• Theaveragenumberofemployeesislow(5).

• ThecompoundcontributiontoGDPofyounginnovativecompaniesislow(~1%).


Whatistheproblem?

• OnlyahandfulofinnovativecompaniesreceiveVCfinancing(<2%).

• Veryfewinnovativecompanieseverreachmorethan100employees(<0.5%).

• Serialentrepreneursarealmostnon‐existent.

• Exitvaluationsarelow.• Taxationcanbearealdeterrent(>90%taxrates).


CurrentstatusofCHgovernmentalsupport

• SupportisgrantedatFederalandCantonallevels.• MainFederalprogram:CTI(CHF150m/year)tofinanceR&Dinpartnershipwithacademia.

• SomemarginalprogramsinthefinancingofGreentechnology.

• Cantonalprogramsareverydiversebutareessentiallyintheformofsmallamounts(CHF50k‐100k)grantedasloanstoearlystageinnovativecompaniesorestablishedinnovativeSMEs.AverageamountperCanton:CHF25m/year.

• TotalyearlyamountisapproximatelyofCHF600m.


Howdoesthiscompare?

USAhasthebulk(0.35%ofGDP)andEUislaggingbehind(0.06%).SwitzerlandisslightlybetterthanEU(0.1%ofGDP).ButthisisnotthecasewithacademicR&Dbudgets!


Boulevard of Broke Dreams, J. Lerner©

EntrepreneurialattitudeinCH

• Notinvolvedinentrepreneurialactivity,buthaveapositiveperceptionoftheirownentrepreneurialcapacityandtheopportunitieswheretheylive–>18%.

• Seegoodopportunitytostartafirmintheareawheretheylive‐>33%.

• Theyhavetheskillsrequiredandknowledgetostartabusiness‐>37%.

• Fearoffailure‐>36%.• Entrepreneurialintention‐>7%


Majorhurdlesandconstraints

1. TransformationofacademicR&Dintofastgrowingenterprises.

2. Taxationofinvestors.3. Stockmarketforinnovativestartups(exit).4. Relaunchearly‐stageVCactivity

(ecosystemandperformance).5. Reducecostoffailure(bothfinancialand

social).


AcademicR&Dtoinnovativebusiness

• WithinALLuniversitiesteachandencourageentrepreneurialactivity(sabbaticals,endowmentfunds,programs).

• CreateeffectiveandbusinessfriendlyIPtransferframeworks.

• Fundincubatorsandaccelerators.• Invitesuccessfulalumnaetospeakandencouragewould‐beentrepreneurs.


Taxationofinvestors

• Thecurrenttaxationregimeforcapitalgainsis0%...But!

• Regular,businessangel‐typeinvestorsaretaxedasprofessionalsandpayupto48%taxesoncapitalgains.

• Thisdifferentiationisappliedarbitrarilyex‐post,creatingastronguncertaintyandfear.

• InvestorsALWAYSreasonintermsofrisk/rewardratioAFTERtax.


StockmarketforEuropeanIPO’s

• TheaverageUSVCIRRis17.9%,whiletheaverageEuropeanVCIRRis1.06%.

• Themaincausesare:– Screeningskills(longerexperienceintheUS).– Useofconvertibleinstruments(higherleverageonvaluation).

– Replacementrateofmanagingfounders(manager‐shareholderagencyproblem).

– Exitvaluations(NoNASDAQinEurope).


Source: RECAF 2003

Early‐stageVCactivitytopromote

• Becauseoftheperformanceissuesdescribed,institutionalmoneyhasdriftedawayfromEUVCactivity.

• Iftheplayersintheeco‐systemimprovetheirperformance,investorswillreturn,butitwilltaketime.

• Thegovernmentcanplayanactiveroleinfosteringsuchecosystemwiththerightdosageofsupportandfinancing.


Reducecostoffailure

• Bankruptcylawispunitiveandoverlyfavorabletocreditors.

• Personalresponsibilityofboardmembersbecomescommonplace.

• Publiccondemnationoffailureisstillthenormandfailedentrepreneursareostracized.

• Bank’s“blacklistsarestillthenorm”.• Thishasaverynegativeimpactonentrepreneurialactivity,bothinconversionratesandrecyclingofentrepreneurialexperience.


Isnon‐interventionismacceptable?

• TheSwissgovernmentisnotoriousforavoidinganyinterventionintheprivateeconomy,whichcouldskewcompetitionrulesamongbusinesses.

• ThishassometimesdriventodogmaticapproachesofinnovationfinancingandaclearimbalancebetweenacademicR&Dbudgetsandtransformationrates.

• Cross‐overfinancing(fromacademiatobusiness)shouldbesupportedbytheState.

• Legalframeworkshouldbeamendedtoaddressweaknessesofcurrentsystem.


Proposals

Therearefourmajortopicstoaddress:1. Getthelawsright(especiallybankruptcylawsandadmincosts).

2. Ensureaccesstocutting‐edgetechnology(reduceIPfriction).

3. Createtax‐incentivesandremovebarriers.

4. Trainpotentialentrepreneurs


Majorcommonerrors

• FieldofDreams:“Builditandtheywillcome”• Timing:Mostcommonmistakeistohaveprogramswhicharetoolongortooshort.

• Sizing:Understandthesizeoftheproblemandthenumberofcompanies(tomuchmoneywillbeasbadasnotenough).

• Badimplementation:Civilservantsarenotventurecapitalists.


Bridgingthegap…


Without breakingthebridge!

Thankyou!

Contactdetails:[email protected]+41229061020


innovation and ppp financing productive and counter ... · pierre kladny...

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