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For better innovation, better venture capital – from the golf course to the desktop

Portugal needs "more innovation". This demand is "old news" through the entire political spectrum – the request for more innovation has been repeated so many times that it is not innovative anymore. What is really missing, however, are more and better ideas on how to promote innovation so that it is effective: Portugal needs to innovate its innovation system.

by Eurico Neves
Innovation Consultant, Inovamais, S.A., Portugal

October 28th, 2011

European indicators, such as the European Innovation Scoreboard, demonstrate that the level of innovation in Portugal has been increasing. But, as it is happening in the entire country, this has been the result of significant inputs –huge investments in infrastructure– without any clear result on the output side, i.e. measurable impacts on the country’s competitiveness. We have better scientific production, more PHDs and even more freeways, but neither of these has been transformed into more competitive companies in the international market.

For a real leap forward in competitiveness and innovation, we need a new concept of support systems, in particular with regard to company financing. This is a common issue not only in Portugal, but also in other European countries, where growth is key to success and where it is obvious that the conventional schemes of providing support to companies (through public agencies with limited knowledge about market trends and a passive approach regarding the transformations around it) are just not flexible enough for the changing needs of the companies. This was proven during the last economic crisis. Venture capital presents itself as the path to follow, with a financing model where responsibilities and results can be shared between financiers and entrepreneurs, and with a permanently active approach towards the supported companies.

In a time of radical changes, Portugal has thus an opportunity to, in a single step, update its innovation system on what is going to be done best in Europe and the world, if it decides to bet on a system that establishes this time of support. A “mainstreaming” of the venture capital mechanisms to support innovation (excluding it from its insignificant role) is presented as a last resource solution compared to public support – much higher, but more strict and without other added value to the company besides financial – and it will demand a great attitude change, not only concerning the management of public support, but also the investors.

In fact, when being called to play a more important role in the innovation system, the investors will be requested to be not only investors, but also effective partners for the growth of the companies where they invest. The image of the investor, making phone calls between strokes in the golf course, is far away from what “business angels” and mainstream venture capitalists of a future innovation system will have to be. Venture capital, which can lead to the creation of new companies and help companies to become international, will have to be much more active and much more present in the daily management of the affiliated companies.

The future venture capital will have to guide the affiliated companies towards innovation and internationalisation. The best business and technology partners will have to be found and included in international networks and projects for the development of new solutions. The initial investment will have to be used in order to find new public and private financing sources and study the most viable markets to the company and promote it next to its main agents. People with the necessary skills will have to be recruited and trained for enabling permanent innovation. Enterprises will have to use internal communication and management tools in order to improve their innovation performance and the transmission of knowledge.

Even more than fortunate or talented individuals, a set of tasks that demands dedicated structures and true platforms of provision of innovation services and growth support is needed. The quality and the intensity of the services provided matter more than the volume of the provided capital (which is important either, but this can be obtained through public support).

Does Portugal need more innovation? Maybe, but it must be linked with the provision of venture capital – not the type of capital which is managed from the golf course, but the one which is supported and accompanied by professional services from the desktop. Portugal needs private “innovation agencies” that share the risks and the results with the companies in which they invest. Now that we have freeways and PHDs at nearly the same level as the rest of Europe, let that be the fundamental “innovation in our innovation system” to improve our competitiveness.