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N. 35, September - October 2007
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 | IP & RTD: Articles
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Financing Technology SMEs
Christian Saublens. Executive Director of EURADA
Claire Munck. General Manager of EBAN
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There remains an information gap between public authorities’
expectations of an increase in the number of high technology companies or fast
growing enterprises (gazelles) and the risk adverse attitude of private
investors. Indeed, today the value of high growth companies is no longer based
on tangible assets but rather on their intellectual property and brand,
so-called intangible assets.
The majority of financial players have good reasons to be reluctant
to provide financing to such enterprises because:
- entrepreneurs have no or a limited track record at the early
stages of development of their business;
- investors lack the skill necessary to assess the commercial
relevance of the technology;
- investors have difficulties evaluating intellectual property
rights or intangible assets;
- time to market might be very long and the commercial risk
therefore proportionally higher,
- Innovation is a risky business.
Although it is widely recognised that the intangible assets of an
SME provide some strong competitive advantages and generate a high added value
through: Increased revenues generated by new products and/or licensing
technology;
- Raising barriers to competitors;
- Stronger market position.
bankers and investors still fail to view intangible assets as an
opportunity rather than a riskier proposition. Business angels are perceived to
be one of the solutions to this type of problem, as their entrepreneurial and
managerial experience can provide them with sufficient knowledge to invest in a
company with few tangible guarantees and high commercial risk. Their role in
European economies should therefore be supported, in particular at the regional
level (see EBAN publications on the role of public authorities in supporting
business angels and business angel networks at
www.eban.org).
This is why awareness campaigns and training initiatives need to be
fostered in order to eliminate the bottlenecks created by the asymmetry of
perception between enterprises and investors.
Actions can be undertaken both on the supply and demand side of the
financial cycle of SMEs. For instance, on the demand side, entrepreneurs
looking for equity should understand the importance of the intellectual
property of their product as a tool to raise funding. They can improve the
presentation of the IPR content and the valuation of intangible assets in the
business plan. This includes an assessment of how the assets will best be
protected or commercialised (royalties, patents, market advantages…).
IPR readiness programmes should be supported in the future for the
entrepreneurs. As far as the supply side is concerned, banks, business angels,
seed and venture capital fund managers have to become more familiar with IPR
valuation methodologies. Public authorities should invest in IPR centres
providing all necessary information and advice on IPR protection, valuation and
commercialisation.
In many regions, entrepreneurs are not fully aware of the
competitive advantage provided by the valorisation of the different sources of
their intellectual property assets (trade secrets, copyrights, industrial
designs, patents, trade marks and brands,…) and how they can integrate
those assets into their business plan for submission to potential investors.
The regional IPR centres could be involved in any investment readiness or
integrated finance scheme in order to help the mediation between entrepreneurs
and investors. Regional Development Agencies have a role in promoting services
available in this field at the regional level to entrepreneurs based in the
region.
It is useful to note that EBAN will collaborate with the World
Intellectual Property Organization, UNIDO, UNECE and Meta Group to organise
special training on the role of intellectual property in raising funds. This
training day illustrates the renewed interest of the financial community to
address the lack of valorisation of intangible assets by entrepreneurs and
therefore the possibility of increasing the number of knowledge intensive
businesses funded at the European level in the future. The event will take
place on 19th November in Geneva, one day before the EBAN Sixth Winter
University seminar in Geneva on a range of topics related to risk capital
finance by informal investors.
For more information, please contact:
Christian Saublens, EURADA,
info@eurada.org
Claire Munck, EBAN,
info@eban.org
Marco Marzano de Marinis,
Marco.Marzano@wipo.int
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