Wednesday 16^th April, 2014, 11am to 6pm

This workshop concentrated on the evolution of the means of financing innovation activities. It started from the recognition that innovation is typically underfinanced. Innovative firms need to invest more in intangible assets than other firms, and intangibles are difficult to evaluate.

The “financing gap” for innovation is mainly determined by the asymmetry in information between the external investors and innovators regarding the opportunity value of innovation and the intangible collaterals. In turn, this information gap is usually mitigated in two alternative financing modes: one is the “relationship financing” based on the full transparency of the innovator’s behaviour, and the other is the so-called “arm’s length financing” where such a transparency is absent. These two different approaches have their own costs and benefits, which cannot usually be compared ex ante.

As a consequence of these problems, innovative firms typically suffer from bank credit constraints, whereas the existing specialized sources of financing innovation – venture capital (VC) and angel investors – have proved to be insufficient. VC investments are mainly attracted to participation in equity capital of existing innovative projects rather than in start-ups. Moreover, VC has proved to be negatively affected by financial and economic crises just when innovation is more needed to foster economic growth. Angel investors may be too constrained in supply. Governmental seed capital and subsidy programmes often lead to misallocation of resources, particularly in emerging economies.

The workshop focused on the developments of new tools of financing and a strategic change in government policies which could overcome the drawbacks of the more traditional approaches. Microfinance is a fast growing way to help the financially under-served people who are striving for social emancipation and inclusion. It could be an important source of financing seed programmes leading to innovation in both emerging and developed economies. A second important new source of financing innovation is crowdfunding. This way of financing, which is essentially based on the Web-based technologies, can help the newly-born firms overcome funding difficulties with funds obtained through the Internet with no limited or no loss of control and ownership. A third promising source is the promotion of the public/private partnership in financing high-tech start-ups in a strategically oriented government. This may be an efficient way of financing innovation particularly in emerging countries such as China.

Below, you can download audio recordings of some of the speakers: