Financial Instruments
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Local and national government often accompany the use of financial instruments with other forms of support.

​To build an effective ecosystem, the public intervention has to balance “push” and “pull” factors along the innovation chain with varying levels of public-private interventions, at different stages.

As far as equity investment in innovative companies is concerned, it is essential to understand the roles of the different actors within the ecosystem and their risk management approach with innovative projects.

Initial stages of product development, linked to R&D (Research & Development) activities and proof-of-concept phases, can be supported and promoted mainly through grants. Starting from a prototype, the engagement of private investors can be foreseen, with the intervention of business angels and seed funds. Pre-commercialization and commercialization are usually covered by venture capital funds, even if this may change soon, considering the new collaborative and shared business models and the entrance into the market of new financial operators, such as crowdfunding platforms.

Another element to be addressed, when looking at services to be made available by the ecosystem, is the lack of “investor ready” companies, meaning the presence of entrepreneurial teams knowing the rules of the game of the VC industry.

Moreover, when designing an effective intervention value chain, it is crucial to find the balance between revolving instruments and grants. Local and national government often accompany the use of financial instruments with other forms of support. In Europe, the European Commission, under the Article 37 of the Regulation (EU) No 1303/2013 states that financial instruments, funded with public money, can be combined with other supports such as grants, interest rate subsidies and guarantee fee subsidies.

In early stage markets or small size financial instruments, grants can be used to support fund managers in scouting (identifying) business opportunities in line with the fund’s investment strategy (in the European Union, covering up to 50% of the scouting costs).

To sum up, critical aspects for risk capital can be grouped in:

  • Cultural aspects;
  • Awareness level of beneficiaries;
  • Expectations of policymakers and stakeholders;
  • Implementation models, management set-up and monitoring.​

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