The IPL newsletter: Volume 13, Issue 262

Can Venture Capital Foster Innovation in Canada? Yes, But Certain Types of Venture Capital Are Better Than Others

Tariq Fancy, C.D. Howe Institute
As Canadian policymakers wrestle with chronically weak Canadian productivity growth, attention has turned to the role that the venture capital (VC) ecosystem plays in fostering innovation. The 2012 Federal budget reflected this focus by earmarking $400 million to support a market for the kind of early-stage risk capital that venture capital funds provide, and without which entrepreneurial start-ups often have limited or no access to capital. This study examines which types of VC best serve the goal of promoting innovation. Focusing on the Canadian context, this study examines the relationship between VC funds and innovation, as measured by patent applications, for the years 1996 to 2008. The analysis includes foreign and domestic VC funds active in the four Canadian provinces with significant VC markets.

Accelerating Impact: Achievements, Challenges and What’s Next in Building the Impact Investing Industry

The Rockerfeller Foundation, New York
The report reviews early successes, current trends, and anticipated challenges, and situates them within the broader evolution of the sector and its key actors. The report examines progress over the past four years in terms of six dimensions crucial to building the impact investing industry: unlocking capital, placing and managing capital, demand for capital, assessing impact, creating an enabling environment and building leadership. The past four years of industry building in impact investing have been dynamic, creative and, above all, productive. More impact capital has been mobilized, more organizations are actively engaged, and more deals are being completed. The report describes the tangible gains in the mobilizing of capital for impact investments by a growing number of players, the range of activity that has resulted in the creation of innovative products and platforms, and increasing activity on the demand side. In spite of this impressive progress, however, impact investing still faces a range of challenges and complexities as the field evolves. There still is much to be done, especially to build industry networks in emerging markets and to strengthen capacity on the demand side.  But it is clear that the industry is shifting from a period focused on organizing itself and establishing initial infrastructure to one much more clearly focused on implementation. Indeed, leaders whom we interviewed and other champions of the field more frequently speak of the need to move into an “era of execution.”

Open Science and Open Innovation: Sourcing Knowledge from Universities

Markus Perkmann and Joel West
This paper investigates how firms work with universities in the course of their innovation activities. It provides an overview of three main modes of direct interaction between firms and universities: IP licensing, research services and research partnerships. It outlines the main characteristics of each mode, its relative importance for firms as well as benefits and challenges. While licensing remains an important mode in which public research finds its way into firms¹ laboratories, the authors highlight the significant role of relationship-based modes of interaction ­ research services and research partnerships ­ between firms and universities. While some of these relationship-based interactions enable appropriation via intellectual property rights, others are more aligned with the norms of open science and create benefits for firms by generating basic knowledge, creating skills and enabling follow-on innovation. It concluded with open questions for future research.

Ideas, Innovation, Prosperity: High-Tech Strategy 2020 for Germany

Federal Ministry of Education and Research
Germany is facing one of the greatest economic and financial policy challenges in decades. It needs to make the most of existing growth potential and open up new prospects for German industry. As it emerges from the economic and financial crisis, the global race for knowledge is accelerating. The international competition for talent, technologies and market leadership will continue to intensify. The High-Tech Strategy is the first broad national concept in which the key stakeholders involved in innovation share a joint vision. It has formulated goals for a wide range of different fields of innovation, defined priorities, and introduced new instruments such as the leading-edge cluster competition and the innovation alliances.

Fifty Ways to Leave Your Competitiveness Woes Behind: A National Traded Sector Competitiveness Strategy

Stephen Ezell and Robert D. Atkinson, ITIF
By definition, countries that wish to successfully compete in the global economy must have highly competitive traded sectors. A nation’s traded sector comprises those industries and establishments which compete in international marketplaces and whose output is sold at least in part to nonresidents of the nation. Traded sectors include almost all of a nation’s manufacturing activity, some services (such as software, Internet, and engineering services, and entertainment content like music, movies, and video games), and some of the extraction sectors (e.g., farming or mining). Because these industries face market competition that is global in nature in a way that non-traded, local-serving industries (e.g., retail trade or personal services) do not, their success is by no means assured. This report presents 50 federal-level policy recommendations to help restore U.S. traded sector competitiveness (and an additional 13 state-level recommendations). The recommendations are organized around federal policies regarding the “4Ts” of technology, tax, trade, and talent as well as policies to increase access to capital, reduce regulatory burdens, and enable better analysis of the competitiveness of U.S. traded sectors.

Restarting the Growth Engine in Finland

Henrik Braconier, OECD
Impressive productivity performance during the last decades has weakened since 2007, reflecting the 2008-09 recession but also a poor performance in important sectors, like the information and communication technology sector. Reforms to raise long term productivity growth need to be pursued. Current project-based R&D-support and business subsidies seem inefficient and should be scaled back and remaining support should focus on addressing externalities in terms of the creation of high productive jobs and R&D spillovers. A R&D tax credit could provide higher flexibility, equity and efficiency than current targeted support. Capital taxation should be streamlined to improve incentives for entrepreneurship and growth. The performance of the higher education system could be improved through allocating more R&D funding and teaching resources based on quality rather than block grants. Productivity performance could be enhanced by exposing sectors like health provision, network industries and retailing to more competition through lowering government dominance in provision and loosening planning restrictions.

Industrial Sector Strategy: UK Sector Analysis

Department for Business Innovation & Skills (BIS) 
This paper analyses a range of evidence on which sectors could make the greater contribution to future economic growth and employment in the UK. It considers in which sector government action could add most value, including advanced manufacturing, knowledge intensive traded services, and enabling sectors.

The Ascent of America’s High-Growth Companies

The Ewing Marion Kauffman Foundation 
Certain regions of the country continuously produce innovative, high-growth companies that have transcended the economic downturn of the last few years. Surprisingly, those regions include more than the expected locales like Boston and Silicon Valley. The study examined geographic trends of firms included in the 1982 to 2010 Inc. 500 lists to analyze for the first time how regional characteristics are associated with high-achieving companies and innovations. A survey of Inc. 500 founders from 2000 through 2008 also provided insight into the movement of these entrepreneurs from the cities of their alma maters to the locations where they founded their companies. While Silicon Valley, Austin, Texas, and other traditional high-tech hotbeds are well-represented among the cities that house high-growth companies, the research shows that Salt Lake City, Utah; Indianapolis, Ind.; Buffalo, N.Y., and several other Rust Belt icons also have accumulated a significant cache of Inc. 500 firms. The greatest number of Inc. firms is clustered in Washington, D.C., with nearly half of these firms operating in the government services sector.

Investment Activity by Canadian Angel Groups: 2011 Report

National Angel Capital Organization (NACO)
This report, the second of its kind, examines 2011 activity levels and highlights trends such as a significant increase in levels of Angel activity. The report also presents an initial analysis of the mode of exit and the returns generated by Angel-backed companies.