Investing: Anyone got €500 million?

Mary Lisbeth D'Amico

A new proposal from the European Investment Fund seeks to accelerate the success of European technology transfer projects. A noble idea, but no one has yet stepped up to foot the bill.

Luxembourg-based investment agency seeks €500 million to fund promising new business opportunity. Only serious, well-heeled candidates need apply.

OK, it hasn't really come that far yet that the European Investment Fund has taken out a classified advertisement. But the EIF is serious about looking for a government agency, preferably the European Commission, to fund its ambitious new plan to help it support successful tech transfer efforts across Europe.

The EIF's call for new funds - up to €70 million a year over seven years - comes as part of an exhaustive study of European technology transfer that it carried out over the past year on behalf of the Directorate General Research (DG Research), the Commission’s research financing entity. The 450-page document, entitled "Technology Translator Accelerators (TTA)", looks at why European tech transfer falls short, and lays out a plan as to how the EIF can play a role in changing that.

The report illustrates the more activist role that governments are now prepared to play to help Europe stay competitive. Certainly, governments around Europe have got the message that they had better pour resources into science and technology. Such programmes have taken on new momentum in the wake of the Lisbon Agenda, which calls for the European Union to be the world’s most "dynamic and competitive knowledge-based economy" by 2010. But ironically, the EIF proposal could get lost amid all the other EU and national government initiatives.

The Commission, which financed the study, has not yet committed to financing the proposal. A DG Research spokeswoman says it was submitted too late to be included in the proposals for the Seventh Framework programme (FP7), the EU’s plan for supporting research and technological development from 2007-2013. "Technology transfer is a priority for us. We are aware of the problem and this report is an excellent diagnostic," says Anna Krzyzanowska, policy officer with DG Research in Brussels. "But we have not yet taken a position on the proposal."

FP7 already plans to increase aid for research and innovation, add tax incentives for firms that invest in innovation clusters and create a European Research Council to promote European science, for example. It also calls for a significant budget increase to more than €70 billion, far larger than FP6. On a national level, governments are also throwing money at the problem. The UK government for example, has earmarked at least £178 million to go towards research projects, infrastructure, skills, knowledge transfer and collaborative R&D and has set up a technology strategy board to identify the most promising technologies. Its goal is to boost R&D expenditures as a percentage of GDP by half a percent to 2.5 per cent by 2014.

More government?

So with all that effort, does tech transfer really need more government help? The EIF thinks so. "With the Lisbon Agenda we expect to catch up to the US, but the [innovation] gap is actually growing," says Felicitas Riedl, an advisory officer with the EIF who contributed to the report.

A number of venture capital participants also say they would welcome the EIF playing an increased role in tech transfer. "The EIF is well placed to help research institutions that are not in the position to finance themselves," believes Ulrich Mahr, a venture capital manager with Garching Innovation, the Munich-based technology transfer arm of Germany’s Max Planck Society. Garching Innovation is also looking at ways to cooperate with the EIF in some capacity to bridge the gap between research and early-stage funding, he notes.

Christian Schneider, a partner with venture capital firm Polytechnos in Munich, also sees a role for the EIF in helping under-funded European tech transfer offices. Schneider attended a biotech conference sponsored by the Department of Trade and Industry and the EU UK Presidency in London this October, where the EIF announced its new proposal. "We told the EU officials that they need to put their money towards hiring tech transfer professionals who get serious salaries," says Schneider. In US universities, he notes, tech transfer officials are highly paid and highly trained. "Tech transfer is a dismal thing in most of our universities," he adds.

Still, Schneider is wary of too much government involvement in technology transfer. "I don't think the government should be investing in things that no one else wants to have. Who should fund them after that?" he asks.   

Mind the gap

New chemical or biological entities brought to market (1989-2003) [click image to open in new window]. Source: EFPIA

The EIF report also points out some concrete reasons why Europe lags in tech transfer. It cites a study from the European Federation of Pharmaceutical Industries and Associations, for example, showing that Europe is now lagging the US in bringing medical compounds to the market, an area where it used to be ahead (see chart.)

Another indicator, it notes, is that elite European institutions get far less licensing revenue from their inventions overall than their US counterparts. For example, in 2003, Cambridge University got only €2.3 million in licensing revenues, compared with Stanford University’s €40 million. The Ludwig Maximilian University in Munich took in only €200,000.

European institutions generally also have fewer resources than US counterparts: they have fewer researchers (see chart) and lower overall budgets. "Tech transfer gets a lower priority at many European organisations...Education and research budgets dwarf the proceeds from technology transfer," notes the report.

Another problem, those interviewed for the report confirmed, is lack of expertise among tech transfer personnel. Goals are often poorly defined - for example, is the focus of technology transfer to maximise profits or to crank out the highest number of spinouts? "As a result, the strategy as to how to develop technology transfer is often blurred," says the report.  

John Hodgson, a partner with the Banbury, Oxfordshire-based biotech consultancy Critical I, agrees with this part of the EIF assessment. "One problem when [projects] are being funded is that the founders don't know what the company will look like at the end of the process.  When you start off in seed funding, that should be the goal. But too often tech transfer doesn't have that goal in mind." The result: "Europe is producing too many under-funded, uncompetitive organisations," he says.  

Survival of the fittest

That underlines another EIF conclusion: that in fragmented Europe, too many tech transfer organisations suffer from a lack of critical mass. To address that, the EIF plans to use its financial resources to assess which European tech transfer models are working the best, and then use a newly created Tech Transfer Financing Facility to invest in the good ones. "Not all tech transfer organisations would meet our criteria," says Riedl. The EIF would also seek to copy these successful models when funding new tech transfer vehicles. "We don't want to re-invent the wheel," she adds.

The EIF sees itself applying what it already does in the venture capital arena - investing in worthy early-stage funds to help support a difficult market - to technology transfer vehicles. It would also work with private and government investors to help create new vehicles. The EIF plans to have a team of 20 experts in Luxembourg, some of whom would have sector expertise, to carry out its proposal.

Those universities or institutions that were not among the chosen would have an incentive to join or team up with the vehicles funded by the EIF to tap into management and funding resources to which they otherwise would not have access. The chosen vehicles would be only half-funded by the EIF, with matching funds expected to come from private investors and local governments.  The facility would seek to provide some return to its investors, although the report says it would be "ludicrous" to expect a high return.

In spite of the funding uncertainty hanging over the proposal, the EIF is still hopeful, at least officially. It says it is still in negotiations for funding and has seen interest in its idea from a number of private investors. It is also forging ahead with plans to launch trials of its tech transfer models in two or three countries to prove the concept, according to Riedl, for which it will use its current budget.