Innovation and start-ups: money is fleeing towards defense

BarcelonaA major problem for innovation to advance in Spain and for start-ups to make the leap is the lack of capital to finance this transcendental step to succeed in having technological giants. Furthermore, added to this is the fact that resources from investors – the funds and venture and private capital needed for this – are being directed massively towards defense, at the behest of demands from NATO and the United States, for countries to allocate a larger proportion of their budget to these activities.

These are some of the problems that have emerged during the conference on innovation financing promoted by the Initiative for Productivity and Innovation (IPI), a think tank of the Cercle d'Economia and SpainCap, an association that groups the venture capital and private equity industry in Spain, held in Barcelona. As the Draghi and Letta reports stated, Europe has the highest savings rate in the world and households accumulate a good part of this money, some 10 trillion euros, in bank accounts and deposits and in financial products, which is capital that "does not move and is not directed towards either innovation or the productive economy", recalled the president of the Cercle, Teresa Garcia-Milà.

Although during the first half of this year the entities of SpainCap have invested more than 3.7 billion euros in Spain, more than 1.1 billion of which is venture capital, the highest volumes in two decades, there continues to be a problem, not in financing the projects that are born, of which there are many and diverse, but in their scaling. "We do not know how to move savings towards the productive economy and innovation, and entrepreneurs have to resort to foreign investors", according to the president of SpainCap, Enrique Tombas.

This was highlighted by the president of the satellite company Open Cosmos, Pere Mier, who was among the audience at the event held at the Cercle d'Economia in Barcelona. Mier recalled the recent 300 million capital increase of his company, in which there is very little local presence (furthermore, the most notable has been that of a public body, the Catalan Institute of Finance (ICF), dependent on the Generalitat).

In fact, the public sector plays a very active role in financing companies at early stages. Many of its representatives were at one of the session's panels: Axis, from the ICO group; the CDTI; the European Investment Bank (EIB), the ICF, and Cofides. Afterwards, there was another one with representatives from private capital (Grow Venture Partners, Asabys Partners, High Growth Catalunya of Banco Santander, and Inveready).

Francisco Badia, managing partner of Grow Venture Partners, stated that, in a context of necessary resources for the growth of European technology companies, in the United States two-thirds of investment goes to artificial intelligence (AI). And in Europe, resources are diverted towards defense. All of this drains funds for the rest of the activities, he lamented.

Another limiting factor is the fragmentation of European markets –each country wants to have its own champions, Badia recalled–, the only exception being health, thanks to the European Medicines Agency (EMA) and because there are no medicines or therapies only for some countries and not for others, but rather they are global projects.

Criticism of taxation

In a similar vein, Clara Campàs, co-founder of Asabys Partners, stated that in the health and biotechnology sector "there is no lack of projects, but rather a lack of ambitious, patient, and private capital, because public capital exists at all stages." Regarding the transfer of resources towards defense, she called for betting on dual-use technologies (with military and security applications, but also civil ones). "We shouldn't just make tanks," she said. There was also criticism of taxation, which, according to private equity representatives, "hinders investors from making these bets," in the words of Roger Piqué, founder, vice president, and managing partner of Inveready.

The session ended with some practical cases, among which were that of Qilimanjaro Quantum Tech, through its CEO, Marta P. Estarellas, that of Factorial, and that of Lumiris Spectral Solutions.