Editor's note

The EU aims at helping the states become the global innovation leaders. First, they have great potentials: Europe accounts for 20% of global R&D investment, produces 1/3 of all high-quality scientific publications, and holds a world leading position in industrial sectors, e.g. pharmaceuticals, chemicals, mechanical engineering and fashion. Second, the EU assistance would give the states strategic orientation and support to reach the goal.

Much is to be done…

Besides apparent advantages in R&D, the EU states are still lagging behind in many areas: the EU companies spend less on innovation than their competitors (1.3% of GDP compared to 1.6% in China, 2% in the United States, 2.6% in Japan, or 3.3% in South Korea).

Venture capital (VC) remains underdeveloped in Europe: in 2016, VCs invested about €6.5 billion in the EU compared to €39.4 billion in the US, and VC funds in Europe are too small – €56 million on average compared to €156 million in the US. As a result, these companies move to ecosystems where they have better chances to grow fast.

The EU is home to only 26 "Unicorn start-ups" (start-ups valued at over $1 billion) compared to 109 in the US and 59 in China. Public investment across the EU falls short of 3% GDP target, and R&D intensity is still uneven among EU regions, with investment and research heavily concentrated in Western Europe. Besides, about 40% of the workforce in Europe lacks the necessary digital skills.

Complementing the R&I in the states

The Commission’s “Renewed European Agenda for Research and Innovation” (published in May 2018) presents a set of concrete actions to deepen innovation capability and provide lasting prosperity to the member states. Renewed agenda see in:

https://ec.europa.eu/info/publications/renewed-european-agenda-research-and-innovation-europes-chance-shape-its-future_en

The EU’s supporting measures in perspective R&I spheres, generally, are of a triple nature: a) to ease science and financial regulation in R&I; b) concentrating on market-driven innovations, and c) launching EU-wide research and innovation hubs.  

Reference: Commission’s press release “Renewed agenda for Research and Innovation: Europe's chance to shape the future” in: http://europa.eu/rapid/press-release_IP-18-3736_en.htm?locale=en;

The proposed €100 billion for the next EU research and innovation programme would be a huge boost. But Europe also needs to reform the support for breakthrough innovation through a new European Innovation Council, and reconnect with citizens through a mission driven approach to research and innovation. The member states need “future-proof regulations” to attract more private investment, in particular in venture capital.

The Commission announced the creation of a Pan-European VC Funds-of-Funds Programme, so-called VentureEU under the Capital Markets Union (CMU) and the Start-Up and Scale-Up Initiative; the latter was first proposed in the Open Science, Open Innovation and Open to the World strategy in 2015.

In November 2016, the the Commission assessed all EU states’ investment proposals and conducted a pre-selection; then the EIF conducted its standard due diligence process of the pre-selected candidates, six of which were selected for funding and invited to enter into negotiations with the EIF late in 2017. The first two signatures took place in May 2018 between IsomerCapital and EIF, and Axon Partners Group and the EIF; the remaining four are expected to be finalised in the course of 2018.

VentureEU is part of the wider R&I system that the EU is putting in place to give Europe's many innovative entrepreneurs every opportunity to become world leading companies. In particular, as part of the Capital Markets Union Action Plan, the Commission has presented a series of measures to improve access to finance for SMEs to create jobs and growth. The Investment Plan for Europe also aims to improve the business environment in the EU by making smarter use of financial resources and removing barriers to investment.

On 1 March 2018, new rules on venture capital investment (EuVECA) and social entrepreneurship funds (EuSEF) entered into application, making it easier for fund managers of all sizes to run these funds and allowing a greater range of companies to benefit from their investments. The new rules will also make the cross-border marketing of EuVECA and EuSEF funds less costly and will simplify registration processes.

See more on new rules in: “Guide for innovation procurement” in: https://ec.europa.eu/docsroom/documents/29261

Risk capital in action

As announced in the renewed Industrial Policy Strategy, the Commission is exploring to set up a complementary European Scale-Up Action for Risk Capital (ESCALAR) to enable venture capital funds to increase their investment capacity.

In November 2016, the Commission proposed a Directive on business insolvency which focuses on facilitating early restructuring and second chance.

See more in: http://europa.eu/rapid/press-release_IP-18-2763_en.htm, 10.iv.2018

The EU Insolvency Regulation adopted in 2015, focuses on resolving the conflicts of jurisdiction and laws in cross-border insolvency proceedings, and ensures the recognition of insolvency-related judgments across the EU. It does not harmonise the substantive insolvency laws of the EU states.

Reviews of the EU recommendations on restructuring and second chance showed that, despite reforms in the area of insolvency, rules still diverge and remain inefficient in some countries. In several states, it is not possible to restructure a business before it is insolvent. As regards the second chance, important discrepancies have remained as to the duration of the discharge period.

Such differences in Member States' legal frameworks lead to legal uncertainty, additional costs for investors in assessing their risks, less developed capital markets and persisting barriers to the efficient restructuring of viable companies in the EU, including cross-border enterprise groups.

Therefore, the 2015 Capital Markets Union Action Plan announced a legislative initiative on business insolvency, including early restructuring and second chance. This initiative is intended to address the most important barriers to the free flow of capital and build on national regimes that work well. The Single Market Strategy announced the support of entrepreneurs through a legislation providing a regulatory environment accommodating failure without dissuading entrepreneurs from trying new ideas again.

On insolvency regulation see: http://europa.eu/rapid/press-release_IP-16-3802_en.htm, 22.xi.2017

“New megatrends” in the world, such as artificial intelligence and the circular economy, would bring profound changes to socio-economic development in the member states. Thus, the Baltic States need acting fast to be able to take part in the new wave of innovation and catch up with the global/European competition wave...