A new model for funding innovation?

By Adrian Tripp, Chief Executive of the European Business Awards

Funding innovators, and start ups doesn’t really work very well in Europe. Private equity, Venture capital etc seems unable to meet the needs of these audiences. And there are many reasons - some valid, some absurd.

So I was wondering whether joint venture partnerships might in part solve some of the funding issues our innovators, start ups and small businesses face. Whilst also giving a much needed jolt of adrenalin to some of our conservative mid market businesses.

What I observe:
• Across Europe we have a large number of mid and large sized businesses that are pretty well run, and profitable, but often not very innovative anymore. They are potentially sitting ducks to globalisation and technology change.

• We also have a group of innovators and entrepreneurs with great ideas and ambitions, but lacking finance. As well as access to markets and management/technical  competency.

So why don’t we get the governments of Europe to give mid-sized companies, 100% tax relief on investments in joint venture partnerships with start ups or small businesses?

The idea would be through some form of exchange scheme, create a mechanism for innovators, start ups and medium sized (possibly large) businesses to find each other. Ideally you get a start up and a mid-sized business in a related field get together. The mid-sized business agrees through the scheme to invest cash into the start up for a stake in it. It also agrees to support the start up with help ranging from technical and operational to management advice. Also crucially the mid sized business should be able to help the start up gain access to markets/customers etc.

By making the investment 100% tax deductable the mid-sized businesses is encouraged to look beyond their horizons. Better to invest it for the benefit of the business and the shareholders than to give it to the tax man.

For the start up the gains are not only money (which is a major achievement in itself) but also expertise and access to market. 
It seems to win on a number of levels:

• Helps reinvent and reinvigorate many mid-sized businesses in Europe (many of which are sitting ducks at the moment to global competition)

• It could significantly broaden access to funding of our best ideas and small businesses (providing much needed growth and reinvention)

• For start ups and innovators, often money is only one of the challenges, often expertise and access to markets/prospects is as much of a challenge. So the benefit of a partnership would include: increased speed to market, greater likelihood of scale, smaller chance of failure.

• Government have been creating investment funds to hand out tax payers money to start ups and small businesses in a variety of guises often run and administered by civil servants. I would like to think that our successful business people, knowledgeable about their own industries would be better able to make the right decisions about where to invest and how to manage that investment to help make it grow.

There are many things to think through -How would you create a joint venture structure that doesn’t fall apart pretty quickly. How do you prevent the inevitable culture clash between start up and a mature business? How do you make sure it doesn’t just become a system for tax evasion by mid-sized businesses, etc.

But in essence is it a good idea?

Has it, is it, already happening in countries in Europe?

I would be interested to know your thoughts and opinions on the idea. Tell me what you think on our LinkedIn group by clicking here