wef europecompetitiveness fosteringinnovationdrivenentrepreneurship report 2014

8/9/2019 WEF EuropeCompetitiveness FosteringInnovationDrivenEntrepreneurship Report 2014

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Insight Report

Enhancing EuropesCompetitiveness

Fostering Innovation-drivenEntrepreneurship in Europe

June 2014


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World Economic Forum2014 - All rights reserved. No part of this publication may be reproduced ortransmitted in any form or by any means, includingphotocopying and recording, or by any informationstorage and retrieval system.

The views expressed are those of certain participants inthe discussion and do not necessarily reect the viewsof all participants or of the World Economic Forum.

REF 160614

In collaboration with A.T. Kearney


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3Fostering Innovation-driven Entrepreneurship in Europe

Contents Preface

3 Preface

5 Executive Summary

7 Section One: How InnovationCapabilities Inuence theCompetitiveness Divide

8 Section Two: A Life Cycle Approach to Fostering Innovation-driven Entrepreneurship: Stand Up,Start Up, Then Scale Up

11 Survey Results: AssessingConditions for Innovation-driven Entrepreneurshipacross Europe

14 Stand Up: Fostering anEntrepreneurial Mindset andCulture across the Continent

18 Start up: Supporting theEstablishment and InitialExpansion of Innovation-driven Ventures

24 Scale Up: The CollaborativeRoad to Sustainable Growth

32 Section Three: Perspectives fromPolicy-makers

44 Section Four: A European Agendato Foster Innovation-drivenEntrepreneurship

50 Section Five: A Look Ahead Opinion Pieces on the Future ofInnovation

55 Conclusion

56 Endnotes

58 Further Reading

59 Acknowledgements

63 Project Team

What if Europe were producing as many fast-growing, innovativecompanies as the United States, with the same level of globalimpact? If Europeans were registering as many patents linked toemerging technologies as Chinese individuals and companies?If the culture of entrepreneurship in Europe were as robust and

ambitious as that of Israel? What impact would this have onEuropes economy and society? It is reasonable to assume thatEuropean output and productivity growth would be signicantlyhigher. Europe would be attracting top talent from all over theworld, even drawing the best minds from Silicon Valley. And,perhaps most importantly, Europe would be a signicant sourceof jobs in future-oriented sectors, helping and inspiring jobseekersto constantly upgrade their skills to take part in the next Europeansuccess story.

Unfortunately, although Europe includes ve of the top 10 mostinnovative countries in the world, as a region its innovationcapabilities and overall competitiveness lag behind those of keycompetitor countries. Multiple data sources indicate that Europeanconditions are far from ideal for entrepreneurs and fast-growingcompanies, and fragmentation hinders access to markets, sourcesof capital and supportive initiatives. As the global innovation frontiermoves inexorably forward, Europe is in danger of falling furtherbehind, putting at risk its outlook for productivity, growth, humancapital development and job creation.

This report, part of the World Economic ForumsFosteringInnovation-driven Entrepreneurship in Europe project, examineswhat steps can be taken to re up Europes competitiveness andinnovation capabilities by expanding the number and quality ofserial entrepreneurs and fast-growing, scalable ventures. It ndsthat, for a truly innovative Europe to compete successfully on

the global stage as envisaged by the European CommissionsEU 2020 Strategy leaders from government, business and civilsociety must take active steps. They must focus, connect andpartner to improve conditions for innovative ventures at all stagesof the entrepreneurial life cycle. As such, this report will be auseful contribution to policy-makers at the European and nationallevels, and a vital resource for entrepreneurs, corporate leaders,academics and civil society actors whose collaboration on theseissues is essential.

The development of the project and this report have shone thelight on the benets of reducing fragmentation and increasingcollaboration across different disciplines and stakeholders. Thereport is the outcome of close engagement between the ForumsNetwork of Global Agenda Councils, Young Global Leaders, GlobalShapers, senior European policy-makers and business leadersfrom Forum Member companies, in addition to 1,132 surveyrespondents and numerous global and European experts fromacademia and civil society.

I would like to thank all project participants, and in particular theproject workstream leaders and advisory board members, for theirgenerosity with their time, ideas and support for this work.

As part of its commitment to supporting European competitivenessand innovation, the Forum will continue this workstream throughout2014 and 2015, both by continuing to promote its work around

innovation-driven entrepreneurship, and through a new researchproject focused on open innovation ecosystems in Europe. We atthe Forum hope you will join us to help realize better conditions forworld-leading innovation in Europe, in line with the Forums motto,Entrepreneurship in the Global Public Interest.

Philipp Rsler,ManagingDirector, Headof Centrefor RegionalStrategies, WorldEconomic Forum


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4 Enhancing Europes Competitiveness

Figure 1: Illustration of Challenges and Approaches to Fostering Innovation-Driven Entrepreneurship

Source: Project Team

F

Innovation capabilities in Europe influencethe Competitiveness Divide 1

Innovationscore:

While the number of micro companies in theEuropean Union has increased by 370,000 (2%)between 2008 and 2013, the number of small,medium and large companies has not grown 1 (in 1,000 companies)

Note: The figure shows the overall GCI rank (lower is better) and the score of each country inthe innovation pillar1. Source: The Global Competitiveness Report 2013-2014, World Economic Forum

3.5-4.0 4.0-4.5 4.5-5.00-3.5 >5.0

4

3

6

8

15

10

23

5135

32

46

49 6263

41

48

58

42

52

75

91

78

7616

28

17

8 out of 10 jobs generated in the EuropeanUnion since 2008 were created in small andmedium-sized companies 1

1. Source: Eurostat statistics on enterprises in the European Union

1. Source: Entrepreneurship in the EU and beyond , European Commission2. Source: Global Entrepreneurship and the Successful Growth Strategies of Early-Stage Companies , World Economic Forum

A Life Cycle Approach to Fostering Innovation-Driven Entrepreneurship:Stand up, Start up, then Scale up

A European Agenda to Foster Innovation-Driven Entrepreneurship

11

22

4457

1


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Executive Summary

Produced as part of the World Economic Forums projectFostering Innovation-Driven Entrepreneurship in Europe ,this report addresses the challenge of lagging European

performance with regard to the regions innovationcapabilities and the conditions for scalable entrepreneurship. As section one illustrates, this challenge includes persistentinnovation divides between European economies as well asbetween Europe overall and comparator economies suchas the United States. The report suggests a forward-lookingagenda designed to contribute to Europes competitivenessand growth by encouraging a robust environment ofambitious, serial entrepreneurs who envisage, create andscale innovation-driven ventures.

In addition to extensive inputs from the Forums Members,Global Shapers, Young Global Leaders, Network of Global Agenda Councils and leading policy-makers across Europe,the ndings in the report have benetted from data gatheredfrom over 60 structured interviews and eight interactiveworkshops (convened in Bad Ragaz, Berlin, Brussels,Dalian, Davos, Geneva and London) as well as an onlinesurvey of entrepreneurs across Europe which gathered1,132 responses.

As a result of this collaboration, four central ideas haveemerged from the Forums work in this eld.

Fostering innovation-driven entrepreneurship inEurope requires a comprehensive view of the entireentrepreneurial life cycle. 1

Section two describes how the life cycle of an innovation-driven entrepreneurial venture can be divided into threephases stand up, start up and scale up (see Figure 1). Therequirements of each of these phases and focus areas ofthe project are summed up below:

Stand up Promoting the attitudes and skills required tomobilize Europeans with both the desire and the ability tocreate scalable entrepreneurial ventures

Start up Gathering the resources to start a business,with a particular focus on access to capital forentrepreneurs across the European Union

Scale up Enabling ventures to scale, with a particularfocus on collaborations that simultaneously improve theinnovation capacity of all partners to create growth and jobs across the region

Stakeholders have signicant scope to positively inuenceexternal factors affecting each of these phases. Surveyresponses from across Europe show that participantsperceive conditions to be most positive for the stand upphase. However the scale up phase is seen as far morechallenging for European entrepreneurs, with only 41% ofrespondents saying that conditions are favourable in theircountry, compared to 63% of North American respondents.

In each phase of the life cycle, challenges and examples ofpractices have been identied to foster entrepreneurship insuch a way as to encourage serial entrepreneurs to interact

meaningfully with other economic actors, and to examinethe factors that comprise a supporting environment forentrepreneurs to develop and scale ideas.

Policy-makers, business leaders and individuals aresignicantly motivated to improve the conditions forentrepreneurship in Europe.

Section three summarises contributions from the highestlevels of policy-making, including European heads ofgovernment, senior ministers and European Commissioners. The contributions show that public sector leadershipare highly aware of the need to foster innovation-drivenentrepreneurship, and that a large number of relevantpriorities are already on the policy agenda. Theseinclude interventions to tailor education to the needs ofentrepreneurial careers, improve access to nance, enhancethe availability of and access to relevant talent, and createbetter conditions for cross-stakeholder or cross-regionalcollaboration between different actors.In addition to policy-makers ongoing efforts, private actorsare very willing to contribute. An overwhelming majorityof survey respondents (87%) say they would personallysupport initiatives in their countries, such as the provisionof educational or nancial opportunities for prospectiveentrepreneurs. Further, a number of leading multinationalsare actively incorporating support for entrepreneurs intotheir business activities in order to harness the innovationcapabilities of new ventures and to engage with localcommunities in new ways.

To more effectively and efciently support innovation-driven entrepreneurship in Europe, stakeholders need tofocus, connect and partner.

Section four proposes a pan-European agenda for moreeffectively promoting innovation-driven entrepreneurship,

designed to harness the potential of stronger privateengagement with various private and public actors, andovercome the challenge of geographical fragmentationaffecting entrepreneurship initiatives across Europe. Threekey elements of this agenda are relevant to the entireentrepreneurial life cycle:

Focus : More explicit criteria that can help stakeholdersidentify and invest in momentum-building entrepreneurshipinitiatives are needed.Connect : In order to overcome the challenge of fragmentedEuropean markets and entrepreneurial support services,stakeholder need to create better and new connectionsacross countries, sectors and programmes that meet keycriteria. A more transparent, inclusive and Europe-widedatabase and network of initiatives would greatly assist inpromoting innovation-driven entrepreneurship.


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Partner : Building on an enabling network, stakeholders mustbe encouraged and supported to collaborate and partneracross initiatives, regions, organization types and sectors toachieve scale and momentum for new ventures and ideas.

Supporting the innovations of today in isolated sectorsis not enough Europe needs to create ecosystems thatwill support innovations emerging in unconventional

ways across government and business.Entrepreneurial ecosystems are deeply affected bytechnological and cultural developments. As digitalinfrastructure and its applications for enterprises continueto develop, the transaction costs of collaborations willdecrease and the ability of different sectors to adoptnew ways of working will increase. Section ve thereforepresents two visionary pieces on the future of governmentand corporate innovation, laying the ground for furtherdiscussion on how Europe can prepare itself in the longterm for successful innovation environments attuned to thebreakthroughs yet to materialize.

This report aims to spur debate on the most effective waysto improve the enabling conditions for innovation-drivenentrepreneurship across Europe. While the emphasis isparticularly on start-ups and small and medium-sizedcompanies (SMEs) as vehicles for value-added activity, theideas in this report are intended to apply more broadly toall contexts, including entrepreneurial activity within largecompanies and in the civil society sector.2

The World Economic Forum hopes that readers will beinspired to focus attention and energy towards building

momentum to tackle the key challenges and opportunitiesfor promoting innovation-driven entrepreneurship in Europe. The Forum and its partners will continue to support thiswork, in particular through further research and dialogue onhow to foster the development of a robust European OpenInnovation Ecosystem.


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Section One: How Innovation Capabilities Inuence theCompetitiveness Divide

Despite signicant efforts to restore economic dynamismthrough macroeconomic interventions and structuralreforms, growth expectations remain tempered across

advanced economies, and in the Eurozone in particular,where growth rates remain low and unemploymentstubbornly high. Europe continues to struggle to increaseits competitiveness and set its economy on a more solidfooting. This is due, in part, to continued uncertainty aboutsections of the European nancial system, inadequatecompetition in the services sector and fragmentation ofmarkets in key strategic sectors.

The Global Competitiveness Report 2013-2014 (Figure 2)shows that Europes competitiveness is far from even,with a sharp divide between a highly competitive NorthernEurope and Southern and Central-Eastern Europe whichtrail behind. This divide is particularly strong in innovationperformance, one of the key drivers of competitiveness forEurope, given its advanced stage of economic developmentand the imperative to focus its production on high value-added, innovation-rich products and services. While ve

out of the 10 most innovative countries of the world areEuropean, many other European economies have muchground to cover. This result is conrmed by the Forums

2014 edition of theEU2020 Competitiveness Report , whichindicates that Europe has the greatest gap with benchmarkeconomies and the greatest divergence between itsmember states with regard to measures of smart growth,particularly with reference to the digital agenda andinnovation.

This report aims to show how to further improve innovationcapabilities in Europe by fostering innovative newventures. Countries that have less developed innovationcapabilities must be aided in their efforts to catch up,while leading innovators must be supported to continueto grow sustainably. Importantly, promoting innovationdoes not mean only focusing on factors related directly toresearch and development, but also requires improvementsacross other pillars such as higher education, training andtechnological readiness.

Figure 2: Dening Competitiveness, Comparison of European Regions,3 Top 10 Countries in Innovation Globally

Source: The Global Competitiveness Report 2013-2014

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Institutions

Infrastructure

Macroeconomicenvironment

Health and primaryeducation

Higher education andtraining

Goods market efficiencyLabor market efficiency

Financial marketdevelopment

Technological readiness

Business sophistication

Innovation

Northern Europe Southern Europe CEE

Scale 1-7

34

The set of factors, policies andinstitutions that determine the level ofproductivity of a country taking intoaccount its level of development.

The 12 Pillars of CompetitivenessDening Competitiveness

Institutions

Higher educationand training

Technologicalreadiness

Infrastructure

Goods marketefciency

Market size

Macroeconomicenvironment

Labor marketefciency

Businesssophistication

Health andprimary education

Financial marketdevelopment

Innovation

Switzerland

Israel

5.3

Finland

5.4

5.8

5.7

5.6

5.2

5.2

5.4

5.5

5.5 Germany

Japan

Sweden

United States

Taiwan, China

Singapore

Netherlands

Scale 1-7


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Section Two: A Life CycleApproach to Fostering

Innovation-drivenEntrepreneurship: Stand Up,Start Up, Then Scale Up



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Section Two: A Life Cycle Approach to Fostering Innovation-driven Entrepreneurship: Stand Up, Start Up, Then Scale Up

Innovation is driven by many actors, including companies,academic institutions and individuals. Although some largecorporations are strong innovators, small and medium

enterprises (SMEs) are frequently the source of ideas forproducts brought to market by large corporations.4 InEurope, SMEs account for over 99% of all rms, two-thirdsof jobs, eight out of 10 jobs net generated since 2008and more than half of the total added value created bybusinesses.5

Nevertheless, SMEs experience high levels of organizationaland employment churn, symptomatic of the real but volatilegrowth, innovation and employment opportunities theypresent. Figure 3 shows that SMEs in different Europeancountries have performed very heterogeneously, showingthe need for specic approaches to rally countries thatare strong performers while allowing those that have beenstruggling to catch up.

It is estimated that only 50% of European start-ups survivethe rst ve years.6 While the number of micro companiesin the European Union increased by 370,000 (2%) between2008 and 2013, the number of small, medium and largecompanies registered no net growth, showing that SMEsface difculties in scaling up and making a signicantdifference to growth and employment across Europe.7

Figure 3: SMEs Struggling to Reach or Exceed the 2008 Level of Employment and Value Added5

Source: Project Team based on Eurostat

This report focuses on the challenge of scaling innovativeentrepreneurial organizations. It identies key needs andchallenges in different phases of organizational development

and suggests that paying more attention to the entireentrepreneurial life cycle enables entrepreneurs, largecorporations and policy-makers to help start-ups and SMEsto scale successfully, while also improving the innovationcapacity of large organizations across Europe. Threeimportant life cycle phases, and the challenges they present,are analysed:

Stand up Assessing what drives individuals to desireand believe they have the ability to start an innovativecompany or join a market innovator start-up or SME asan employee

Start up Assessing the success factors for anentrepreneur in establishing an innovative organizationand making it a viable venture, in particular to be ableto secure the required nancial and human capital andincrease the likelihood for the business to break even

Scale up Assessing success factors in enablinga business to expand in terms of market access,revenues, added value and number of employees, inparticular identifying and realizing win-win opportunitiesfor collaboration between market leaders and marketdisruptors

tnemyolpmE(2014e relative to 2008 level)

Value-

added e4102(

relative to2008 level)

0.9

1.4

1.3

1.2

1.1

1.0

0.8

0.7 1.31.21.11.0 0.90.80.70.6

United Kingdom

Portugal

Poland

Norway

Netherlands

Malta

LuxembourgLithuania

Latvia

Italy

Ireland

Hungary

Greece

Sweden

France

Finland

Estonia

Denmark

Czech Republic

Cyprus

Germany

BulgariaBelgium

Austria

Spain

Slovenia

Romania

Croatia

Bubble-size: number of companies per country

Increase in employment or value-added

Decrease in both dimensions

Increase in employment and value-added


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In the following pages, a detailed model is introduced foreach life cycle phase, showcasing key inuencing factors,discussing the main challenges, and featuring leading

initiatives illustrative of the ideal conditions for that phase. Each phase highlights different key inuencing factors fromamong the six displayed in Figure 4:

Attitude refers to the individuals mindset, particularlytheir risk-taking drive and level of perseverance qualities identied as essential for an entrepreneur.

Skills refer to the set of job-related and behavioural skillsrequired to successfully found or work in a fast-growing,innovative organization.

Cultural/social framework refers to all the socialand cultural factors that either support or inhibit anindividuals decision to engage in the entrepreneurialecosystem rather than other occupational pathways.

Regulatory framework refers to the administrativeprocesses and rules required to start and operate acompany, including licensing, tax and labour marketregulations.

Market framework refers to the availability of necessaryinputs, transformation processes and customer demandnecessary to found and develop a venture.

Network access refers to the availability of supportingpartners, advisers and enablers who transfer know-howand create opportunities for growth.

Figure 4: A Life Cycle Model for Entrepreneurship6


For the purpose of this report, innovation is consideredin a broad sense as the capability to manage an idea orinvention, whether involving new products, processes,

services or business models, leading up to successfulcommercialization. Entrepreneurship is dened as thepursuit of opportunities beyond the resources you currentlycontrol.10

Turning an innovative idea into economic activity createscompanies, economic growth and jobs. However, theentrepreneurial life cycle is not designed to end at thesuccessful scaling of a venture. The goal of a healthyand robust entrepreneurial ecosystem is to foster serialentrepreneurs who persevere over multiple ventures and,upon achieving success, continue to support entrepreneurialactivities as investors, mentors and role models.

Promote starting aventure or joinentrepreneurs

Improve access tocapital for business

foundation

Identify and realizemutually beneficial

partnerships

Stand upStart up

Scale up

Serialentrepreneurship

I n

d i v i d u a

l

f a c

t o r s

E c o s y s

t e m

f a c

t o r s

4 5 6RegulatoryframeworkMarketframework

Networkaccess

1 2 3Attitude Skills Culturalframework

Phase:

Focusarea:


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Figure 5: Overview of Participants by Region; n=1,132

Source: World Economic Forum European Survey on Fostering Innovation-driven Entrepreneurship 2014

Figure 6: Overview of Demographic Information


Survey Results: Assessing Conditions for Innovation-drivenEntrepreneurship across Europe

To better understand the motivations and external factorsinuencing European entrepreneurs and to test projecthypotheses, the Forum partnered with Research+DataInsights, Junior Achievement-Young Enterprise (JA- YE) Europe, and the European Confederation of YoungEntrepreneurs (YES) to survey a broad range of Europeanswith experience or interest in entrepreneurship.

Conducted in February and March 2014, the online surveyreceived 1,132 responses from across Europe, withadditional responses coming from comparison regionssuch as North America (see Figure 5). Inuenced by socialmedia-driven outreach and promoted through the ForumsGlobal Shapers Community and the networks of surveypartners, respondents were on average young (60% wereunder the age of 30). There were more male (64%) thanfemale respondents (36%). A third of respondents werecurrently running their own businesses, a further 19% hadpast experience as entrepreneurs, and 30% had consideredstarting a venture but not done it yet (see Figure 6).

20

25

17

14

12

12

Western Europe (WE)

Germany, Austria,Switzerland (DACH)

Southern Europe (SE)

Other

Central and Eastern Europe,Turkey (CEET)

Northern Europe (NE)

Participants by region(%)

19

41

21

13

4

up to 20

21-30

31-40

41-50

51-60>602

33

19

30

5

13

I am currently runningmy own venture

I started and ran myown business but nowam doing somethingdifferent

I have consideredstarting a business buthave never doneit myself

I have never reallythought about startinga business

Other

36

Male64

Female

Participants by gender(%)

Participants by age group(%)

Participants by background(%)



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After asking respondents about what inuenced theirmotivation to engage in entrepreneurial activities (see page15), the survey asked current and would-be entrepreneursto rate their assessment of how favourable their country ofresidence was in terms of the three phases in the life cyclediscussed above: promoting entrepreneurship, starting abusiness, and scaling a venture.

Overall across Europe, conditions were perceived mostpositively for the stand up phase, with only 30% claimingthat conditions were either very or somewhat unfavourable,and 54% stating they were either very or somewhatfavourable. Conditions for the start up phase were perceivedas only marginally less favourable. The scale up phase wasseen as signicantly more difcult across Europe 37%found conditions unfavourable in their country and only 41%perceived them as somewhat or very favourable (see Figure7).

These results are more positive than many experts engagedin the project expected. However, when compared withNorth America the picture is less impressive; North America-based respondents were signicantly more positive whenit came to conditions in their environment 66% saidthey perceive favourable conditions for stand up, with thenumber rising to 69% for start up and maintaining a robust63% for scale up.

Figure 7: Perception of Conditions per Phase of the Entrepreneurial Life Cycle: Stand Up, Start Up, Scale Up; n=951


When comparing the assessment of conditions betweendifferent countries and regions within Europe, NorthernEuropean countries (Denmark, Finland, Iceland, Norwayand Sweden) tend to perform signicantly better than therest of the region for the stand up and start up phases.Germany, Austria and Switzerland receive the highest ratingfor the scale up phase. Southern Europe (dened here asCyprus, Greece, Italy, Malta, Portugal and Spain) performs

signicantly worse than average (see Figure 8). Interestingly,no signicant difference exists between assessmentsof any phase in Central and Eastern Europe and Turkeywhen compared with Western Europe (dened here asLuxembourg, Belgium, France, Netherlands, Republic ofIreland and United Kingdom), indicating a potential draw forentrepreneurs from these economies to Central and EasternEuropean (CEE) countries to take advantage of lower xedand labour costs when starting or scaling a venture. Acountry-wise split of results is given in Figure 9. Perceivedconditions for stand up and start up are best in Estonia,Denmark and the Netherlands. For the scale up phase,Switzerland, Poland and Denmark take a lead.

Further results from the survey are integrated throughoutthis report.

22 2013

3232

28

15 17

21

20 21

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10 9 11

2

Start up

1

Stand up

3030

41

5254

Scale up

1

37

Very favourableSomewhat favourableNeutralSomewhat unfavourableVery unfavourableNo opinion



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Figure 8: Perception of Conditions per Phase of the Entrepreneurial Life Cycle: Stand Up, Start Up, Scale Up (% ofsomewhat favorable or very favorable answers); n=951


Figure 9: Conditions per Country and Life Cycle Phase based on Countries with More Than 20 Responses(average of responses; 1: very unfavourable; 2: somewhat unfavourable; 3 neutral; 4: somewhat favourable; 5 veryfavourable)

Note:Regional averages are not restricted to countries with more than 20 responses; regional/country split focuses on Europe and North America.


Southern EuropeCentral and Eastern Europe, Turkey

Western Europe

Northern Europe

Germany, Austria, Switzerland

Stand up

Start upScale up

80%

0%

Perceived conditions per life cycle phase

nCountry Stand Up Start Up Scale Up

Overall 3.4 3.3 3.1 1,130

Central, Eastern Europe and Turkey (CEET) 3.3 3.3 3.1 278

Albania 3.3 3.1 3.2 26

Czech Republic 2.5 3.0 2.8 26

Estonia 4.3 4.5 3.4 29

Latvia 3.4 3.3 3.1 65

Poland 3.3 3.5 3.5 20

Turkey 3.3 3.4 3.3 45

Germany, Austria and Switzerland (DACH) 3.3 3.5 3.4 187

Germany 3.2 3.4 3.4 105

Switzerland 3.6 3.7 3.6 68

Northern Europe (NE) 3.9 3.9 3.4 139

Denmark 4.0 3.9 3.5 82

Southern Europe (SE) 3.0 2.6 2.3 162

Russia 3.0 2.8 2.7 28

Greece 2.5 2.4 2.4 29

Italy 2.7 2.6 1.6 33

Portugal 3.6 3.0 2.9 70

Spain 2.4 2.1 2.0 25

Western Europe (WE) 3.4 3.4 3.0 229

Belgium 3.1 2.9 2.7 80

France 2.9 3.3 2.1 34Netherlands 3.9 3.8 3.4 51

United Kingdom 3.5 3.6 3.4 59

Overall average for Europe 3.3 3.3 3.0 1,031

Overall average for North America 3.8 3.8 3.7 36



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Stand up: Fostering anEntrepreneurial Mindset and

Culture across the Continent



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It takes an entrepreneurial mindset to found a company,or the willingness and ability to take the risk of joining aninnovative start-up as an employee.12 Figure 10 details

a conceptual model for the factors inuencing whethera person or group has what it takes to found or join aninnovation-driven venture.

Three core factors to foster entrepreneurial culture

The decision to become an entrepreneur or join aninnovative entrepreneurial venture is complex.13 This analysisfocuses on three categories of individual factors that werehighlighted in interviews and workshops: A positive attitude towards entrepreneurship and risk as

an enabler for selecting an entrepreneurial career withrelevance throughout the process.

The skills (such as business intelligence and thecapability for idea building) to start or join anentrepreneurial business and turn inspiration into reality.

Thecultural/social framework family, friends, peerentrepreneurs and role models that inuences thedecision and roll-out process.

Understanding what motivates European entrepreneurs

The Forums survey of 1,132 Europeans with experienceor interest in entrepreneurship revealed that the top threemotivators to stand up are: to work independently andhave more control of ones work (67% of respondents), tocreate an innovative offering to take to market or pursue an

idea (59%), and to challenge oneself (51%).

Stand up: Fostering an EntrepreneurialMindset and Culture across the Continent

Figure 10: A Conceptual Model of Factors Driving the Decision to Become an Entrepreneur or Joining a Market Innovator The Six Inuencing Factors of Innovation-driven Entrepreneurship


Interestingly, although the least motivating factor indicatedwas to earn money (38%), when looking at the opportunitycost of the decision, the same group said that relative to

other career opportunities, engaging in entrepreneurialactivities is less attractive in terms of job security (64%),nancial benets (29%) and long-term career prospects(26%). Concern about nancial benets is greater amongrespondents potentially joining an entrepreneurial ventureas an employee (37%) than those starting their ownventure (29%). These results indicate that policy-makersmight do well to focus on attracting new entrepreneursby reinforcing the non-pecuniary benets of innovation-driven entrepreneurship, as well as those mechanisms thathelp protect against the employment and nancial risks ofcreating or joining a new venture.

Challenges for promoting entrepreneurship

Attitude: People are risk-averse and aim less for radical innovationFear of failure is a key dimension frequently shown to bea roadblock for entrepreneurship, and seems to be moreprevalent in Europe than in other regions.14 Studies havefound evidence that the recent economic turbulencehas resulted in entrepreneurs taking less risk overall. Forexample, in the high-tech sector, it seems that entrepreneursare less inclined to aim for radical innovation.15 This is akey challenge, as overcoming and learning from failureis crucial for successful entrepreneurship. Consider this:Employees of the Finnish start-up Rovio had developed 51

programmes, none of which was a commercial success. After going through this, their 52nd programme, AngryBirds, nally delivered an overwhelming success and hascharted 500 million downloads.

Impact

Attitude Perceived reward/status of

entrepreneurship Perceived risk Personality type Determination

1 Skills Markets/business intelligence Management skills Social skills Creativity Idea/concept building

2 Cultural framework Family Friends Peer entrepreneurs Role models, mentors

3

Regulatory framework4 Market framework5 Network access6

Decision process is influenced by expectations regarding:

Aim for an entrepreneurialcareer

Be inspired to starta business

Be inspired to join aninnovation-driven SME

Turn inspiration into reality


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Attitude also refers to determination and ambition. Althoughmuch attention is currently paid to measuring entrepreneurialactivity, it is the quality of entrepreneurship that determineswhether a company will become a multinational someyears after foundation or not. While, for example, theNetherlands has achieved the highest European percentageof entrepreneurs among adult population, the country doesnot perform signicantly better than others with regard

to successful scaling of businesses. One explanation forthis may be that many Dutch entrepreneurs do not havethe ambition for their businesses to be Europe-wide orglobal. Since increasing the ambition of large numbers ofexisting entrepreneurs is a difcult task, recent research hassuggested concentrating efforts towards high potentialentrepreneurs with elevated levels of ambition, andfacilitating companies already exhibiting fast growth.16

Skills: Entrepreneurship schools and universitiesPossessing the skills to found and operate a businessis an important complement to the attitude of risk-taking and perseverance that successful entrepreneursdisplay. Entrepreneurship education is undergoing steadydevelopment in Europe, but there remains room for furtherexpansion in primary, secondary and tertiary contexts.However, expanding such schemes requires well-trainedinstructors to both teach and offer practical experience toyoung people that directly link to the needs of a start-up.

Educational experiences have been shown to be powerfulinuencers of entrepreneurial activity: in a joint study, JASweden (member of JA-YE Europe) and the StockholmSchool of Economics demonstrated that mini companyprogrammes have a signicantly positive effect on the

creation of new rms, on rm survival, and on job creationin organizations featuring programme participants.17 This isstrongly reinforced by the Forums survey, which reveals thatentrepreneurship education was one of the most meaningfulforms of prior exposure to entrepreneurship for 54% of therespondents. The European Commission endorses this by

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38 29

45 4848

42

3435

55 4540

37 39 4052

45 42

39

62 56

2726

28 26 24 25 23

29 36

17 15 17 24 23

39 32

1623 23

32 30 29

2024 27

23 17 18

56566

4

5

4

45

IT

2

3

MT

1

3

PT

2

ES AT

1

4

FR

2

CZ

2

4

LU

22

2

EE

2

2

BG

0

3

RO

2

1

LT

2

2

SK

3

5

HU

1

1

2

2

UK

1

5

DE

2

2

BE

2

3

CY

3

3

DK

3

2

LV

6

PL

3

NL

3

2

IE

2

1

FI

3

2

EU27

2

3

GR

3

3

SI

1

4

SE

1

1

You have started a business, taken over one or are taking steps to start one NA

You have the opportunity to take over your family business You thought about it or you took steps to start a business

You are thinking about starting a business It never crossed your mind to start a business

Figure 11: Reasons for Not Having Started a Business, Based on a Survey of 30,881 Respondents

Source: Entrepreneurship in the EU and Beyond , European Commission

stating: Investing in entrepreneurship education is one ofthe highest return investments Europe can make Whetheror not they go on to found businesses or social enterprises,young people who benet from entrepreneurial learningdevelop business knowledge and essential skills andattitudes, including creativity, initiative, tenacity, teamwork,understanding of risk and a sense of responsibility.18

Cultural/Social framework: Drawing attention toentrepreneurial career options The third and possibly most important factor isculture, which determines individual attitudes towardsentrepreneurship, and how much support they get along theway. One aspect of this is the attention paid by Europeansto the possibility of a career as an entrepreneur. Accordingto the European Commissions Eurobarometer (Figure11), 45% of Europeans have never thought of starting acompany. Self-employment is a less popular option todaythan it was in 2009, with a clear majority in the EuropeanUnion (EU) now favouring work as an employee. Another isthe prevailing attitude towards entrepreneurs, which, whilefavourable, lags the professions. While 79% of Europeanstend to agree that entrepreneurs create new products andservices that benet everyone and 87% believe they create jobs, professionals (such as architects, lawyers, doctors andaccountants) nevertheless enjoy a more favourable opinionamong Europeans.19

The importance of family and peer inuence is underlinedby the fact that more than a third of entrepreneurs whoresponded to the Forums survey indicated that each ofthese factors was an important, meaningful experiencethat encouraged them to start their own venture. Early

exposure to entrepreneurship, entrepreneurial thinking andpeer-level success stories is therefore key to transmittingan entrepreneur-friendly culture. As mentioned above, thisculture should also foster high levels of ambition, such thatthe desire to start a business is accompanied by a desire tocreate innovative offerings that possess the potential to havelarge-scale impact across Europe and the world.


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Table 1: Practices in collaboratively promoting entrepreneurship and entrepreneurial careers, with examples


Actors Leading initiatives to foster attitude, skills and cultural/ social framework

Leading initiatives to foster regulatory framework,market framework and network access

Private Private platforms to connect mentors andmentees, entrepreneurs and interns, entrepreneurs

and potential entrepreneurs

Mentorsme.co.uk is a national network of over 10,000experienced mentors offering free or paid mentoring.20

Enternships.com has helped over 5,500 companiesnd graduate talent for entrepreneurial internships.21

Founders4Schools reached 2,500 students in a pilotprogramme in 2011-2012; the platform connectsentrepreneurs with teachers to inspire talent at schoolwith success stories.22

Bottom-up networks for entrepreneurs engaging inpolicy support

Campus Party, Le Web and Pioneers are leadinginternational conferences gathering entrepreneursand talent, promoting entrepreneurship by providingaccess to broad and dynamic networks and byinuencing policy.23

Public-private

Public-platforms to connect private actorswith schools and private universities to set upeducation programmes, student projects or eventsto inspire talent with success stories

Junior Achievement Young Enterprise Europe is Europes largest provider of entrepreneurshipeducation programmes. It reached 3.1 million studentsin 2012.24

IMP rove offers intrapreneurial experiences (that is,behaving like an entrepreneur while working within alarge organization) in consulting SMEs in innovationmanagement based on an extensive Europeanbenchmarking database. Over 3,500 companies inmore than 30 countries have used IMProve.25

The European Forum for Entrepreneurship Research (EFER) has trained 472 professors in entrepreneurship,organizes events and publishes regularly onentrepreneurship since its founding in 1987.26

Large-scale event series to promoteentrepreneurshipGlobal Entrepreneurship Week , the worlds largestcampaign to promote entrepreneurship, inspires andconnects potential future entrepreneurs. It has heldapproximately 35,000 events in 125 countries.27

Bottom-up networks of entrepreneurs providingbottom-up policy supportEuropean Young Innovators Forum (EYIF) is buildinginnovation ecosystems in Europe by encouragingyoung Europeans to take more risks in innovation andentrepreneurship, and encouraging governments,businesses, society and individuals to support andreward such risk-taking through policy frameworksand access to mentors, nance and markets. EYIFhas rapidly become the leading foundation for youthinnovation in Europe, reaching more than 500,000participants.28

Partnering across stakeholder groups to improveregulatory frameworkStart-up Europe was launched in March 2013 witha six-part plan to accelerate and connect local

entrepreneurship ecosystems in Europe, with a focuson tech start-ups.29 The European Digital Forum is a rst-of-its kind thinktank dedicated to empowering tech entrepreneurs andgrowing Europes digital economy..30

Public Systematic entrepreneurship education throughoutthe curriculum, tailoring content to market needsInitiatives exist in a dozen countries on cooperationbetween education and business, entrepreneurialcompetitions, certication of entrepreneurship skills,

the setting-up and running of student training rms,and teacher training and support.31

Comprehensive entrepreneurship programmesThe Entrepreneurship and Innovation Programme under the European Competitiveness and InnovationFramework Programme (CIP) had a budget of 2.17 billion for the period 2007-2013. Achievements

include numerous projects with universities andnon-governmental organizations to improveentrepreneurship education, and the European SMEWeek with 1,562 events across and beyond Europe in2012.


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Start up: Supporting theEstablishment and Initial

Expansion of Innovation-drivenVentures



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Figure 12: Overview of Start-up Phase

Source: Project team, based on nancing stage overview by OECD39

I n

d i v i d u a

l

f a c

t o r s

Attitude1 Cultural framework32

Production concept: Checking ideas Business analysis

Market analysis S t a r t

i n g u p

t h e

e n t r e p r e n e u r i a

l

l i f e c y c

l e

Seed stage Early stage Expansion phase

Business start-up: Market concept Further development

of products

Initial scaling: Market launch Market leader

Start of production: Market launch First sales

achievements

Skills

E c o s y s

t e m

f a c

t o r s

F o c u s a r e a :

A v a

i l a

b i l i t y o

f a n

d

a c c e s s

t o c a p

i t a

l

Friends and family

Regulatory framework4 Network access6Market framework5

IncubatorsBusiness Angels

Availability of and access to capital

Venture CapitalLoans

Loss zone

Profit zone

Start up: Supporting the Establishmentand Initial Expansion of Innovation-driven

Ventures

In the second, start up phase of the entrepreneurship lifecycle ecosystem factors play a crucial role. This sectionfocuses on access to capital as a key bottleneck in starting

a company: 79% of Europeans specify access to nanceas an issue preventing them from starting or expanding abusiness.29 While regulatory frameworks are often also citedas a barrier to business set-up and operation in Europe,these are very heterogeneous across European countries for example, in some countries, all the necessary licensesrequired to start a business to manufacture small IT devicescan be obtained in less than 10 days, while in others it cantake more than 80 days.30

As Figure 12 indicates, nance comes in a number of formsthat differ in relevance and accessibility at different stages ofa ventures growth. Friends and family are often the earliestform of seed nance, frequently complemented by fundsdrawn from incubators and business angels. Venture capitalis primarily available in Europe to ventures that are past theproof of concept stage, while bank loans and other formsof growth capital require evidence of successful operationand prots that indicate future success at larger scales.

Even though major cities are booming, venture capital supply has decreased by 56% since 2007 The EU is home to 19.0 million micro companies (those

with less than 10 employees), constituting the preponderantmajority of the 20.6 million SMEs in Europe in 2013.31 How many businesses are set up in a given period variesacross Europe: in Spain and Italy, fewer businesses werestarted in 2013 than in 2008, while France, Sweden and theUnited Kingdom have experienced an increase.32 However,Europes major innovation hubs are booming. Between2008 and 2012, the number of start-ups in Berlin increasedfrom 36,700 to 44,200 per year.33 Yet, venture capitalfundraising in the early and expansion stages amounted toonly 3.6 billion in 2012, compared with 8.2 billion in 2007 a drop of 56%.

This section examines the reasons for this contraction inaccess to capital in further depth, considering the drivers ofthe overall situation and segmenting the analysis by actors,with a focus on the role of business angels, venture capitaland banks.


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The challenge of access to capital

Mediocre long-term performance dampens capital supplydespite a number of recent success stories The quality of ventures demanding capital and the returnexpected of them in prevailing market conditions play akey role in determining access to capital. Europe doesnot lack capital, but there is a lack of appetite to invest in

entrepreneurial ventures as an asset class, partly due to aperception of low returns for investors. Indeed, from 1980 to2012 and including the years of the nancial crisis, venturefunds reported an average internal rate of return of only1.27%, with the top quartile earning 18.49%.34 However,while data is hard to come by, in recent years the Europeanventure capital segment has seen a number of notablesuccesses such as Supercell and Spotify. Many Europeanventure capital experts say the sector is stronger than thelong-term data indicate.

Today, non-European investors recognizeEuropes strong development. Take digitalas an example. In music, Europe is thehome of Spotify, SoundCloud andShazam. In gaming, there is Rovio,Supercell and King. In e-commerce, thereis Skyscanner, Privalia or Zalando. Insoftware, you nd Criteo, Unity andOpenX. Since Skype, the speed at which

Europe is generating billion-eurocompanies has been dramaticallyincreasing.

Matthias Ummenhofer, Head, Venture Capital, European InvestmentFund

Figure 13: New Venture Funds Raised in Europe by Investors, 2007-2013 (Incremental Amount Raised per Year in BillionEuro and as a Percentage of Total)

Source: European Private Equity and Venture Capital Association (EVCA)

New VC funds raisedin EU-28 (in bn. ),thereof:

0.5(13%)

2008

6.2

0.9(15%)

2.0(31%)

0.7(12%)

1.2(20%)

0.2(4%)

0.3(5%)

0.6(10%)

2007

8.2

1.1(14%)

1.5(18%)

1.4(17%)

0.9(11%)

0.5(6%)

1.0(12%)

1.2(14%)

0.3(7%)

2013

4.0

1.5(38%)

0.9(23%)

0.5(12%)

0.1(4%)

0.4(9%)

0.5

(14%) 0.3(9%)

0.3(10%)

2009

3.6

1.0(29%)

0.7(18%)

0.5(14%)

0.3(8%)

0.3(9%)

0.8(24%)

3.2

1.0(32%)

3.9

-51%

2012

1.5(38%)

0.6(15%)

0.5

(14%)

0.6(15%)

0.3(7%)

0.2(5%)

2011

5.2

1.7(33%)

0.9(17%)

0.6(11%)

0.7(14%)

0.1(2%)

0.4(8%)

0.5(9%)

0.2(4%)

2010

Family offices andprivate individuals

Government agencies

Fund of fundsand other asset managers

Corporate investors

Insurance companies

Pension funds

Banks

Capital markets

Academic Inst./Endowments/Foundations

Sovereign wealthfunds

Supply of business angel nancing: Transparency of availability and smartness of money needs to be improved Business angels are a key source of seed nancing. Smartmoney from business angels can serve to provide bothnancing and expert advice. However, transparency onthe availability and quality of angel funds is an importantissue. This is illustrated by the fact that the visible share ofbusiness angel investments only amounts to approximately

10% of the overall market estimate of 5.1 billion for 2012.38

However, while there is room for improvement, projectinterviewees and workshop participants did not see theactual availability of business angel capital for seed andearly-stage nancing as a key issue. Rather, the primaryfocus was on the missing middle of nancing larger-than-typical angel investments (up to around 500,000) butsmaller than the deal size typical of venture capital fundsoperating in Europe (from 3-5 million up).39

In the aftermath of the crisis, government agencies provide a key share of venture capital As mentioned above and displayed in Figure 13, the supplyof venture capital has seen a sharp decline in recent years.Part of it is linked to higher levels of risk aversion followingthe nancial crisis as investors struggle with an increasedregulatory burden.39 This drop in private investment hasseen the role of government agencies in venture capitalraised from institutional investors increase from pre-crisisactivity of 14% in 2007 to 38% in 2013. A reliance onpublic funds in this way is not a good sign of the healthof the venture market government agencies nancingvolumes are typically limited in the case of the GermanGruenderfonds, for example, to 500,000 for the rstround and up to 1,500,000 for follow-up rounds which

can create ceilings for subsequent nancing, therebyexacerbating the challenge of accessing growth capital.40


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The sources of nancing for European venture funds differstrongly between European regions, as shown in Figure 14.While in Germany, Austria and Switzerland (DACH), as inthe United Kingdom and Ireland, less than 20% of venturefunds have come from government agencies, such agencieshave accounted for over 40% of venture funding in Centraland Eastern Europe. Banks are particularly importantfor venture funds in Southern Europe (22% of nancing)

and Central and Eastern Europe (CEE) (26%), giving anindication as to why nancing in these regions has becomemore challenging in the aftermath of the nancial crisis, andmay remain tight as regulation and capital requirementsrestrict the ability of banks to invest. In CEE, family ofcesand private individuals do not contribute a signicant shareof nancing, whereas this group represents more than 20%of funds raised in DACH, Southern Europe and WesternEurope. Corporate investors take a share greater than20% only in DACH. Funds of funds which hold a portfolioof other investment funds rather than investing directly instocks, bonds or other securities and capital markets areparticularly important in Western and Northern Europe.

Figure 14: Sources of Funds European Venture Funds by Region41 (Percentage of Total Incremental Fundraising, 2007-2013)

Source: European Private Equity and Venture Capital Association (EVCA)

Figure 15: Imbalance between Seed and Follow-on Rounds by Number and Region

Source: European Private Equity and Venture Capital Association (EVCA); National Venture Capital Association/Thomson Reuters

Europes next challenge is to increase the number of high- growth businesses receiving nancing roundsFurther nancing challenges appear when start-upbusinesses attempt to scale their activities. Comparingseed/start-up/early-stage rounds with follow-on roundsbetween the United States and Europe in Figure 15, thedrop from seed to follow-on rounds is steeper in Europe,illustrating the European valley of death. Of course, some

drop is natural as a portion of start-ups invariably fail, butthe extent of the difference between Europe and the UnitedStates does indicate greater difculty in accessing growthcapital in Europe.42

17 23

31 3543

29

3021 9

610

7 15

15

268

9

813

9

22 26

5 188

85

CEE

4

1

2 0

NE

4

03

Western Europe

42

Southern Europe

3

0

DACH

3

0

Government agenciesFamily offices/Private individuals

Fund of funds/other asset managers(including PE houses other than fund of funds)

Corporate investors

Insurance companiesPension fundsBanksCapital markets

Academic institutions/Endowmentsand foundations

Sovereign wealth funds

1.61.7

2011

1.61.5

1.2

1.7

2009

1.6

2010

1.41.5

2007

2.1

1.5

2013

1.5

1.9

2012

2.1

2008

Late/ExpansionSeed/Start-up/Early

US

2.2

2013

0.9

2012

0.8

2.2

2011

0.9

2.0

2010

1.0

2.1

2009

1.2

2.1

2008

1.5

2.2

2007

1.4

2.0

EuropeNumber of companies financed (in thousands)


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3.8

3.4

3.2

3.0

2.7 3.72.8 2.9 3.0 3.1 3.2 3.3 3.4 3.5

3.6

2.6

4.0

4.2

3.8

2.8

2.6

2.4

2.2

2.0

1.8

1.6

1.43.6 4.24.1

4.4

3.92.52.42.32.22.1 4.01.91.81.71.61.51.4 2.0

SwedenUnited States

Finland

Luxembourg

NetherlandsUnited Kingdom

India

Access toventure capital

Access to bank loans

Belgium

Slovenia

PortugalCroatiaSpain Romania

Lithuania Russia

Greece

Ireland Brazil BulgariaLatvia

Cyprus Austria France

Estonia

Czech Republic

China

Italy

Hungary

Poland Denmark

Slovak RepublicGermany Malta

Increased demand for collateral after the economic crisis restricts access to bank loans for entrepreneurs The European Small Business Finance Outlook 2013 andThe Global Competitiveness Report 2013-2014 show thatthe nancial and economic crisis continues to impact capitalsupply by inuencing nancing conditions. In particular,greater demand for collateral by banks has made it moredifcult to access credit.43

In some countries, such as the United Kingdom, potentialdifculty with access to bank loans is alleviated by easieraccess to venture capital. However, as Figure 16 indicates,restricted access to bank loans and venture capital reectsEuropes competitiveness divide, with Northern Europeancountries being among global leaders in access to venturecapital and loans.

The growing number of legislativeinitiatives in the wake of the nancialcrisis has amplied the burden for long-term investors. Capital standards likeBasel III and Solvency II have pushedbanks and insurance companies out ofEuropean long-term equity nancing,impacting private equity and venturecapital.

Andr Loesekrug-Pietri, Managing Par tner, A CAPITAL

Figure 16: Access to Venture Capital and Bank Loans in EU-28, the United States and BRIC Countries (Brazil, Russia,

India, China), Average of Survey Respondent Scores per Country

Survey questions: Access to venture capital: In your country, how easy is it for entrepreneurs with innovative but risky projects to nd venture capital?(1 = extremely difcult, 7 = extremely easy); Access to bank loans: In your country, how easy is it to obtain bank credit with only a good business plan andno collateral? (1 = extremely difcult, 7 = extremely easy)Source: Global Competitiveness Index 2013-2014


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Table 2: Practices to Collaboratively Promote Access to Capital, with Examples


Financing phase

Actors Seed/early stage Later stage and expansion stage

Private Focusing on private actors

The European Business Angel Week will increase visibility ofangel investments; 140 events were held in 34 countries inNovember 2013.44

Using crowd-funding. In a large number of emergingplatforms, both funding needs and funding purposes arecommunicated through an open call to a forum the crowd.In 2012, global crowd-funding reached $ 2.7 billion raised(of which some 44% was lending and 4% equity). Globalcrowd-funding grew 81% in 2012, accelerating from 64%growth in 2011, while European crowd-funding volumesgrew slower 65% to $945 million.45 At the current marketdevelopment stage, due diligences for lending and equitycrowd-funding can be an issue due to the low marketpower of individual investors.46

Offering alternative instruments to classic loans Intermediated disintermediation

Setting up mini-bonds , e.g. of 10 million volume, which areaccessible to medium-sized companies and can be traded,and do not depend on bank nancing, can help. The marketfor mini-bonds has expected grown strongly from 90million in 2012 to1 billion in 2013 in the United Kingdom.47

We need an intermediated disintermediation. Andrea Illy, Chief Executive Ofcer, Illycaff

Public-private

Rethinking the role of public entities as co-investors joining private investments

Co-investment funds provide 1) the opportunity to investin larger companies and 2) increased potential to diversifyinvestment amounts. Take the EBAN/EIF collaborationbetween business angels and the EIF, for example. InPortugal, business angels invested 2 million on averageprior to the launch of a co-investment initiative; afterwards,the average investment became 11 million. In the UnitedKingdom, theScottish Co-Investment Fund (SCF) is a72 million equity investment fund. In venture capital, forexample, the fund invests 0.5-2.0 million in deals of 2-10 million. The fund operates at minimal cost on a fullycommercial basis.

Offering combined support services and nancing

A growing number of European accelerators and incubatorscan combine nancial support with networking, mentorshipand physical space for entrepreneurs. A recent studyby Telefonica indicates that over the past ve years, thenumber of incubators and accelerators has increased atan annual rate of 29% to an overall number of 260 start-up

programmes in Europe, compared with around 200 in theUnited States.*

* Incubator: provision of physical space, usually withoutfunding but with mentorship network, informal eventprogrammes, consulting services, investor exposure andpublic funding links. Accelerator: provision of pre-seedinvestment, usually taking a minority share in the start-up;start-ups prot from both events and mentoring.Source: Salido, Sabs and Freixas (2013), The Acceleratorand Incubator Ecosystem in Europe, Telefonica.

Creating and aligning partnerships between companies,universities and research organizations

Finland is a leading country in innovation cooperation between companies and the research sector. In SMEs,an investment of 1 by Finlands funding agency Tekesproduces 21 of turnover annually; for every euroinvested by Tekes, companies increase their own R&Dexpenditure by two euros. A total of 47 of the 50 fastestgrowing companies in Finland are Tekes customers. Thesesuccesses are not linked to higher spending; in relation togross domestic product, public funding for R&D activities inFinland is 3%, compared with 7% on average in the EU and14% in the US.48

We need to strengthen access to capital acrossthe region beyond the early stage by creating apartnership between public and private investorsin a new European fund-of-funds for venturecapitalDrte Hppner, Chief Executive, The European Private Equity and Venture Capital Association (EVCA)

We need more of a pan-European mentality, bothon the investors and on the entrepreneurs side.Karen E. Wilson, Senior Fellow, Bruegel, and Organisation forEconomic Co-operation and Development (OECD)

Public Reducing costs for entrepreneurs 49

We invest in the business environment to create a feeling of opportunities. Ali Babacan, Deputy Prime Minister of Turkey

The Turkish state reduces taxes for techno parks eligible businesses do not have to pay income or corporate taxes onrevenues derived from certain development projects.47


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Scale up: The CollaborativeRoad to Sustainable Growth



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When helping SMEs in Europe, we shouldnot lose sight of those entrepreneurs whohave the potential to go international. Wewant to create European Champions.

Carl Bildt, Minister of Foreign Affairs of Sweden; Chair, Global AgendaCouncil on Europe

The solutions being pioneered by start-ups are an important element of ourinnovation strategy. This year alone, forexample, we have seen more than 300start-ups and entrepreneurs take part inour Open Innovation project, and havelaunched partnerships to develop 60 newtech businesses over the next three-years.

Antony Jenkins, Chief Executive Ofcer, Barclays

Microsoft is actively working to provideopportunities for European SMEs andstart-ups by providing access to digitaltools, training and mentorship to ensuretheir growth and thus contribute tofuelling the European economy.

Jan Mhlfeit, Chairman, Europe, Microsoft Corporation

Benefit for large corporates Benefit for entrepreneurs Risk to one or both partners

Company shares in high-potentialentrepreneurial ventures Access to finance

Loss of reputation if collaborationfails, loss ofinvestment/independence

Ideas/concepts, possibilities to test ideasquickly and outside complex structures,access to technology, rapid prototyping

Commercialized innovation in anaccelerated process IP ownership, disputes, issues

Specialized talent and resources Access to talent and resources Loss of talent or resources

Specific partner network Access to business partners, opportunityto demonstrate capabilities and to createsuccess cases for marketing

Branding issues

Specific customer intelligence, access tospecific customer segments

Learning about new application fields,access to new markets and sales networkto access the market

Unclear or too high expectations

Entrepreneurial spirit and culture Experience and advice Dilution of organizational culture andcultural clashes

Scale up: The Collaborative Road toSustainable Growth

For Europe to realize the potential of its innovativeentrepreneurial ventures, the ventures must scale wellbeyond simply being viable, local businesses employing

a handful of people and serving a small customer base. The primary ways for start-ups to achieve scale tend tobe: organic, acquisitions, or collaboration. While the rsttwo options generally require large levels of equity ordebt nancing, collaborative strategies enable win-winsituations for both partners while offering potential for thestart-up partner to prot from the resources and backboneof the large corporation partner. This section thereforeexamines the potential within Europe to foster collaborationsthat enable the scaling of innovative ventures to the benetof all parties concerned.

Table 3: The Give and Take of Collaboration Key Aspects Based on Project Interviews and Workshops


Collaboration between large market-leading corporationsand innovators can create opportunities throughout thevalue chain. Collaboration may occur in many areas,including research and development (R&D), sourcing,manufacturing and sales. The focus of this section is onR&D collaboration broadly dened, whereby a start-up/ innovative SME and a large company agree to work togetheron the development or implementation of novel know-howby making use of the resources and competencies of bothorganizations.51 An overview of the benets and risks ofcollaboration for entrepreneurs and large corporates isshown in Table 3.


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The analysis is based on the six dimensions of successfulcollaboration shown in Figure 17. Dimensions one to fouraddress the different perspectives of entrepreneurs andlarge corporations: rst, there has to be a strategy for

innovation and collaboration . Second, a culture for co-

creation and adequate organization needs to be developed.Building contacts requires work on aspects three and four:becoming a magnet for attracting partners with a reputationfor successful collaboration, and scouting for partners effectively and efciently to monitor and evaluate futurebusiness opportunities.Negotiating and xing contractsneeds to offer mutual benets within a lean process toaccelerate progress with innovation projects as comparedto a purely internal effort.Developing collaborations

and exploiting results requires joint efforts to translatethe collaboration into successful business impact forboth partners. With regard to inuencing factors of theentrepreneurial life cycle, this section focuses on network

access , in particular on access to business partners.

Figure 17: Six Dimensions of Successful Collaborations with Key Challenges and Inuencing Factors


Figure 18: Enabling Factors for Collaboration and Co-Creation between Entrepreneurs, Academia and Large Corporations(% of respondents); n=855


Innovationfunnel

Ecosysteminfluencingfactors

Individualinfluencingfactors

1 3Attitude Cultural frameworkSkills2

Regulatory framework4 Network access6Market framework5

Define strategy for innovation andcollaboration

Define and publish search fields

Know of and profit from corporate searchfields for innovation

Entrepreneur perspective

Large corporate perspective

IDevelop culture and organization Foster a collaborative culture and

organization

Steer and monitor degree of openness

Attract partners Develop brand for mutually beneficial

collaborations Make systematic use of networks to create

awareness for own offerings and skills

Negotiate and fix contracts

Adapt and accelerateprocesses if required

Clear alignment of intellectualproperty rights

IIIII

V

IV

Develop collaboration and exploit results

Set and manage clear expectations Focus on tangible results and protect IP Agree on and implement the marketing

and sales strategy for the launch

Idea/ project

Scout partners

Develop transparency on available partners

Identify relevant large corporates andchampion inside the company

VI

Joint perspective

Very low Somewhatlow NeutralSomewhathigh Very high No opinion

Culture ofcollaboration andco-creation

769%

21325%

22927%

24629%

597%

324%

Transparency and

visibility ofopportunities forcollaboration

83

10%

255

30%

249

29%

186

22%

42

5%

40

5%

Ease of setting upand operatingcolaborations

617%

21225%

29134%

20924%

455%

374%

11-20%

21-30%

>30%

Up to 10%

Challenges for collaboration Almost one-third (30%) of respondents to the Forumssurvey on innovation-driven entrepreneurship had partneredwith a large corporation or organization in a former venture.Respondents report that a lack of transparency and visibility

of opportunities (39%), a weak culture of collaboration (34%)and the difculty of setting up and operating collaborations(32%) inhibit this type of partnership.

European survey participants rated the enabling factorsfor collaboration and co-creation either neutrally or low onaverage (see Figure 18). They indicated partnerships wouldresult in improvements in a number of areas: they wouldimprove opportunities to bring ideas to market (80%), toaccess customers outside local markets (69%) and toaccess nance (68%).

Specic challenges per dimension are shown in Table 4.


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Table 4: Challenges Guiding Entrepreneurs and Large Corporations in Partnerships


Dimension Challenges for large corporates Challenges for entrepreneursDeningstrategy forinnovation and

collaboration

Dening and publicising search elds

As a rst step, capability gaps within the

organization need to be clearly identied so thatthey can form the basis of the search for suitablecollaborators. This would also lower transactioncosts for potential partners.

Know of and prot from corporate searchelds for innovationEntrepreneurs in start-ups/innovative SMEs need

to be proactive to monitor how far their activitiesare relevant for large partners, considering theircapacity to manage collaborations withoutcompromising their core elds of work.

Developingculture andorganization

Fostering a collaborative culture andorganizationBoth a soft cultural and a hard organizationalcomponent need to be considered: from acultural perspective, collaboration requires a newparadigm of open R&D. Importantly, this requiressupport throughout the corporate hierarchy.From an organizational perspective, developing a

specic structure and processes to institutionalizecollaboration is crucial to systematically realizeopportunities e.g. by creating separate units forventuring or R&D collaboration. The independenceof these units has been highlighted as animportant enabler for disruptive innovation.52

Steering and monitoring degree of openness

The not-invented-here syndrome that leads toexternal work being seen as competition anda threat to ones own organization should beovercome. The degree and scope of opennessare crucial: opening up without protectedintellectual property (IP) or without a considerable

time allocation for R&D inherits major risk forentrepreneurs.53

Scouting forpartners

Developing transparency on available partners

Any rm may nd an enormous number ofpotential market innovators to collaborate with.For example, there were 44,200 start-ups in justthe city of Berlin in 2012, and 21 million SMEs inEU-28 alone.54

Identifying a relevant large corporate and achampion inside the company There are 43,700 large corporations in EU-28. Nevertheless, from the perspective ofan innovative SME, the number of largecorporations representing potential partnersis much more tractable, and the challenge liesin identifying the relevant contact within theorganization.

Attractingpartners

Developing a brand for mutually benecialcollaborations

Given the immense number of entrepreneurs,the likelihood of actively identifying the mostsuitable start-ups or SME partners is limited.Complementary, large corporations need to seekways to attract high-potential partners.

Making systematic use of networks to createawareness about strengths and skills

There are high transaction costs involvedin building collaborations due to the lack ofinformation about needs. Creating awarenessabout ones skills and strengths is imperative forattracting potential large corporate partners.

Negotiating and

xing contracts

Adapting and accelerating processes, assigning intellectual property rights clearly

Speed matters. Finding the right mix of rigour and pragmatism when negotiating a win-win contractis important. Setting up a collaboration requires fast and lean processes at both partners ends tofully realize the potential of accelerating R&D while keeping the approach tractable for the smallerpartner. A key challenge is integrating the smaller partner in the procurement processes of the largecorporation, which are usually complex and can burden the smaller partner. To build trust betweenpartners, potential benets and in particular intellectual property rights need to be assigned clearly.

Developingcollaborationand exploitingresults

Setting and managing clear expectations, focusing on tangible results and IP protection, andagreeing on and implementing a marketing and sales strategy for the launch

Timescales are a key aspect while developing and strengthening partnerships. Frequently, frictionsoccur due to the amount of time it takes a large corporate to make a decision, process a contractor issue a payment. Because entrepreneurs and particularly start-ups operate on shortenedtimescales, it is often important to set expectations upfront. Securing IP rights can form the basis ofunique innovation-driven business models. Marketing and sales activities related to the results of thecollaboration need to be considered as early as possible so as to allocate resources accordingly.


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Boosting collaboration is aboutsystematically identifying win-winsituations for both sides.

Jim Andrew, Chief Innovation Ofcer, Philips

Opening-up systematically in theirinnovation activities along their product-or service life cycles will be key for largercompanies in order get to the next level ofspeed, effectiveness andcompetitiveness. The order of magnitudefor this need for a specic company mightdiffer by the industry it is operating in, butthere is no way not pursuing it andbuilding the respective necessarycapabilities.

Kai Engel, Partner and Managing Director, Germany, A.T. Kearney

Dimension Practice/exampleDening a strategyfor innovation andcollaboration

Focus on potential corporate partners whose leaders personally supportcollaboration with smaller companies: these organizations can more exiblyaccommodate SMEs particular needs. Robyn Scott, Co-Founder, OneLeap; Young Global Leader

If large corporations systematically publish their search elds, there will be anincrease in transparency, which ultimately boosts collaboration. Martin Vollmer, Chief Technology Ofcer, Clariant

Developing culture andorganization

Promoting an R&D setup with specic organizational structures integratingemployees, partners and customers Barclays Open Innovation: 55 The project began with a survey of business units, whichreturned more than 80 challenges that could be addressed by start-ups and entrepreneurs.Over 300 individuals - founders and entrepreneurs pitched their proposed solutions tospecic challenges in a series of presentations and one-to-one sessions which involvedmore than 60 members of the Barclays team. The result was 171 one-to-one evaluationsand 92 companies selected to launch pilots and develop partnerships. Barclays is nowworking to scale this model for open innovation across the group and in different regionsand problem sets.

Phonebloks/Motorola: 56 Phonebloks aim is to develop a modular cellular phone to providethe opportunity to change, for example, the camera or the memory card without havingto change the entire phone. The approach was open-source, and made for the entireworld; Phonebloks has more than 960,000 supporters. Motorola committed to open up itscorporate R&D, using a platform for exchange with the Phonebloks community. To retainindependence, Phonebloks is nanced by donations. Motorola will provide a developers kitto allow the community to contribute to product development.

Table 5: Practices to Promote Collaboration, with Examples



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Dimension Practice/exampleDeveloping culture andorganization (continued)

Ensuring senior executive support for external collaborations

BT/MySinglePoint (MSP) :57 BT uses multiple mechanisms to ensure that collaborationwith start-ups and SMEs delivers results. First, BT has dedicated scouting teams inSilicon Valley and Israel, led by a senior executive with enough credibility in the companyto champion collaboration cases. Second, BT involves senior executives early in thecollaboration process, by organizing meetings with selected companies during dedicatedoff-site sessions. As an example, over the last six months, BT has been working closelywith the Israeli start-up MSP. The engagement with MSP started with an innovationscouting trip to Israel, attended by BTs Technology, Services & Operations Chief Architect. This senior level sponsorship provided access to the right operational teams, and led toa rapid evaluation of MSP with a live trial in BT quickly following the initial engagement.Running an entire division aimed at providing digital services to UK SMEs helps seniorexecutives understand the perspective of smaller companies and what they expect froma partnership. BT has specic light versions of processes for running proof of conceptstudies, and the scouting team ensures the company is respectful of start-up resources.

There is always the potential for an impedance mismatch between large corporatesand start-ups, the key is to seek senior executive sponsorship early enough to

optimize resource alignment. Jean-Marc Frangos, Managing Director, External Innovation, BT

Creating a culture for co-creation

Preparing an organization to collaborate has several dimensions: we need to workboth on capability to absorb external input and willingness to realize opportunities. Thomas Mller-Kirschbaum, Corporate Senior Vice-President, Research & Development/Sustainability, Henkel

Large corporations need to internally promote the benets of collaborations withstartups to help the organisation foster these kinds of opportunities. Miles Kirby, Managing Director of Qualcomm Ventures, responsible for investments in Western and EasternEurope

To systematically foster collaboration between large companies and entrepreneurswe have to start with specic topics e.g. 3D printing around which co-creationcan happen. We are not lacking good ideas, we are not lacking potential cooperationopportunities. Large companies can provide the challenges and can provide themarket needs to give those ideas a direction. They should meet in virtual and/or realspaces to engage, experiment and ultimately co-create.Sven Scheuble, Vice-President and Head, Siemens Technology-to-Business Center

Conduct experiments to truly understand the living organism of collaborations. Sir Tim Hunt, Principal Scientist, Cancer Research UK; Nobel Laureate

Scouting for partners Conducting a broad search for partners

Siemens/PhysX: 58 At the Siemens Technology-to-Business Center (TTB) the idea ofGame Engine Modelling (GEM) was born, i.e. to apply game engine components andarchitecture to machine simulation. TTB scouted for a lightweight, inexpensive consumer-level game engine as a fundamental building block. As such, TTB licensed a game enginecalled PhysX from a small Swedish gaming start-up. PhysX provided the basic engine formodelling various forces, such as gravity and acceleration. Ultimately, the project led to anindustry-leading product called Mechatronics Concept Designer.


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Dimension Practice/exampleScouting for partners(continued)

Drawing on intermediaries supporting connections between challenges and solvers

Innocentive works with over 300,000 solvers from more than 200 countries, and hasposted more than 1,650 external challenges and thousands of internal challenges.

The CEO-Collaborative Forum (CEO CF) is where CEOs from high-growth companiesconvene to explore practical solutions to critical problems about nance, raising capital,shareholder issues, their board growth strategies and other challenging real-life issues. They receive peer-collaborative feedback from an experienced community of CEOs.Startup Europe Partnership is a platform where startups meet corporates, with a goal:to make things happen, whether that means procurement (corporates buy products andservices from startups), strategic investments and eventually acquisition.56

Finding the right entry point and the right champion is crucial: a person who issenior enough to bend some rules if necessary for collaboration with a start-up/ SME.Rajeeb Dey, Chief Executive Ofcer, Enternships.com; Young Global Leader

Building a database and evaluating data with a clearly dened process

Google Ventures uses algorithms with data from academic literature or from due diligences. As summarized in The New York Times : Is it better to invest in someone who started acompany in a mediocre year for returns and did well, or started one in a good year withmediocre results? Most people say the rst case. But results from academic studiesshow it is the second, because that indicates the founders have a better sense of markettiming.60

Attracting partners Developing a brand as a leading collaborator

Start-ups have choices. It is important that we bring something more to the tablethan investment and scalability potential for the innovations being developed bythem. In this new phase in

wef europecompetitiveness fosteringinnovationdrivenentrepreneurship report 2014

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