Capital from the Silicon Valley for companies with ideas

This month, the first group of businessmen seeking foreign partners are leaving for the Silicon Valley. The US-Polish Trade Council programme supporting Polish enterprises, or the activity of the National Capital Fund, are just a few examples of good patterns of supporting Polish innovation. The results would be much better if replicated.

Professor Piotr Moncarz from the Stanford University and his colleagues from the US-Polish Trade Council have launched a programme for Polish companies seeking an opportunity to enter the global market. They decided that the California cluster was one of the best gates to the world.

In September, the call for companies wishing to participate in the programme was announced. As a result of the selection process, 14 enterprises were chosen from among more than 30. From that group, eight decided to participate in the programme.

‘The purpose of the selection process was to assess whether the companies which had applied were already prepared for establishing contacts in the Silicon Valley. All companies which passed the verification could participate in further preparations. They will culminate in a series of meetings with potential partners selected specifically for each company,’ said Piotr Moncarz.

The effects of the first edition were so promising that the call for the second edition has already been announced. The participating companies will start visits to California in March next year. Applications will be accepted via the USPTC website.

Poland’s showcases

The group of eight companies which have just finished the first edition are already preparing for a trip to the Silicon Valley. One of the first visitors to California will be i3D, a company using three-dimensional computer graphics, for example to create virtual simulators of various devices. The company has already completed orders for such oil potentates as Saudi Aramco and Exxon.

Another participant in the programme, Apeiron Synthesis, is one of the few global manufacturers of metathesis catalysts – substances used in the production of the most refined chemical substances. The company has been founded by a young researcher, Michał Bieniek PhD, collaborator of Professor Karol Grela, Poland’s most distinguished authority in this field. In the group of companies leaving for the Silicon Valley, there is also Baltic Ceramics, a manufacturer of ceramic proppants, or innovative materials used in shale gas extraction. Flytronic is a Gliwice-based manufacturer of unmanned airplanes.

The companies leaving for the Silicon Valley in November will have an opportunity to participate in another project organised by the US-Polish Trade Council. On 15-17 November, the Poland-Silicon Valley Science and Technology Symposium will be held at the Stanford University. This year, the main topics will be power engineering, microelectronic mechanical sensors, graphene and financing of innovative projects.

During the power engineering panel, the participants will discuss the opportunities related to shale gas extraction and processing, designing and construction of intelligent power networks and the production of electric cars.

‘In Poland, launching the production of electric cars is highly unlikely, but Polish science may play a significant role in research on new batteries for car motors. This issue is still open. Maybe our achievements in the production of graphene, in combination with the knowledge of Polish chemists, will bring about interesting results,’ wonders Piotr Moncarz.

Representatives of Tesla Motors, the potentate of the automotive industry based on electric motors, have been invited to participate in the symposium. Discussions on other subjects will be attended by representatives of giants such as Intel, Applied Materials, Chevron and Fairchild Semiconductors.

Fledgling financing

There is a complementary concept to the project by professor Moncarz and his colleagues, namely a newly launched programme of the National Centre for Research and Development (NCBiR) entitled go_global.pl. It will grant subsidies to companies to cover up to 90% of their costs incurred for the development of activity in a new area, including the costs related to patenting a product or developing a strategy for expansion in a new market.

The programme is intended for companies established before 1 January 2009. The subsidies will be granted under de minimis public aid, which means that accumulated support of this kind, granted to one company from various sources, must not exceed EUR 200,000 over a period of two years. It is also possible to obtain financing from the programme of the National Centre for Research and Development to cover the costs of participation in the USPTC programme of the US-Polish Trade Council.

Simultaneously with the above-mentioned projects, new funds are also being launched to invest in innovative companies. One of the funds will be Poland Growth Fund III, which is to have PLN 100 million at its disposal. It is being created by Heyka Capital Markets Group in cooperation with the National Capital Fund.

The Fund is to seek Polish companies with a global potential and competent staff, planning investments to be implemented over a period of two to seven years. Anna Hejka, Managing Director of Heyka Capital Markets Group, says that when launching the new fund, she counts not only on capital from investors whom she manages to encourage to cooperate but, first of all, on having an opportunity to make use of their business and market expertise, and networks of contacts.

The grass is always greener on the other side of the fence

Unfortunately, new funds and initiatives supporting innovations are only a small spoonful of honey to sweeten the bitter pill of problems faced by companies seeking market opportunities in modern technologies and services every day.

‘Persistence of Poland’s innovation gap, despite an unprecedented influx of the European Union funds, is a threat to the implementation of the strategic objective, i.e. becoming one of the most innovative countries in the world by 2020.’ This is one of the main conclusions of the report on the innovation of the Polish economy drawn up by the Institute of Economic Sciences of the Polish Academy of Sciences and published in mid-2012. The authors of the report highlighted that the significant portion of the EU funds allocated for financing innovation in Poland (EUR 10 billion in the 2007-2013 budget), has been allocated for modernisation investments having little to do with innovations.

Looking for symbols of Polish innovation weakness one need not look further than the fortunes of the method of producing petrol from water and carbon dioxide developed three years ago by the team headed by professor Dobiesław Nazimek from the Marie Curie-Skłodowska University in Lublin. Back then, they planned to launch an installation for large-scale production of petrol but until now, due to lack of money, it has not been set up. In two years, such production is to be launched by British Air Fuel Synthesis, a company that recently announced it developed a technology very similar to that invented by Polish researchers.

‘We had many foreign proposals to launch a larger-scale production technology but we insisted that the first installation should be set up in Poland. Now I hope that the information on the British achievement will make decision-makers act faster and support our solution,’ said professor Nazimek.

Risk paralyses officials

When asked why public institutions are frequently unable to help the authors of innovative solutions, professor Moncarz mentions risk – an integral element of innovation. Officials avoid it like a plague, afraid of punishment for any potential failure. Therefore, they prefer to support token innovation in the shape of modernisation whose effects are easier to predict.

A solution for the problem might be entrusting decisions on financing of innovations with public money with professionals accustomed to such risk, i.e. people having competence, experience and documented success in selecting innovative companies and enhancing their value.

If an increase in the value of capitalised companies constituted the basis for the remuneration of such decision-makers and, in addition, if public funds were combined with the capital of private investors having access to intellectual capital as well, then maybe the number of companies introducing real innovations and achieving commercial success would increase considerably.

However, in order to see it work, trust between public and private partners would be needed and in the Polish realities private enterprises are usually perceived as potential frauds.

An efficient combination of public funds with money and expertise of private investors was the guiding idea of Piotr Gębala and Piotr Ćwik. Seven years ago, they were entrusted with organising the National Capital Fund (KFK) from scratch. The Fund’s task was to create, together with private investors, venture capital funds managed by experienced teams of specialists that would invest in innovative micro, small and medium-sized start-ups.

The Israeli Yozma fund, regarded as the symbol of innovation success of Israel, has been created based on similar principles. It is worth mentioning that another fund, Inbal, has also been created in that country. Whilst Yozma has been managed by market specialists and operated according to purely commercial principles, Inbal has been overregulated and burdened with administrative requirements , with officials becoming involved in the decision-making process related to investments. While the former is commonly regarded as a spectacular success, the latter is not less spectacular failure.

The National Capital Fund, having at its disposal public funds from the Innovative Economy Operational Programme, the Swiss-Polish Cooperation Programme and the State budget, established 16 funds in cooperation with private investors. Their  total equity amounts to over PLN 1 billion, half of which are public funds. So far, those funds have invested in 30 innovative companies.

The amount of capital raised by the funds created by the National Capital Fund is definitely impressive. However, if the mechanism is to have a real impact on the level of innovation in Poland, it should be replicated by many subsequent funds, so as to invest tens of billions zlotys in total.

Unused potential of Open Pension Funds

Despite an influx of funds, genuinely innovative companies have difficulties in acquiring capital for development. It is a curiosity that at the same time the representatives of venture capital funds consider finding an attractive investment opportunity a problem. Piotr Moncarz absolutely disagrees with this opinion.

‘When I travel Poland, I regularly encounter intellectual storms being a quarter-step away from launching promising companies,’ said professor Moncarz.

In his opinion, the problem may lie in the evolution of venture capital funds over the decades. In the past, they were mainly established by engineers who had already achieved financial success. They understood the intentions of other engineers working on innovative ideas well and had better instincts for the commercial potential of inventions.

In modern venture capital funds, the key role is played by financiers who use the services of external advisors, which affects their decisions.

Anna Hejka is also of the opinion that the problem lies in a deficit of capital rather than of good business ideas.

‘A great deal of incubators and funds have already been set up in Poland. However, there are still too few. Moreover, this is a relatively new activity in Poland and not all of those institutions function in an optimal way. Still, there is no capital for many creative and enterprising Poles,’ said Anna Hejka.

In her opinion, the funds raised by Open Pension Funds could be used to finance investments in innovations. She cites the example of the United States, where 30% of capital for the development of innovations comes from pension funds. In Poland, Open Pension Funds having the assets of almost PLN 100 billion do not invest in innovations at all. Yet, if they allocated only 5% of their assets for this purpose, additional capital of almost PLN 5 billion would be available for such investments.

The postulates of entrepreneurs and private investors are not a breakthrough. These are relatively simple formulas based on making effective use of expertise, experience, energy, contacts and the capital of private investors in combination with funds which public institutions may have at their disposal.

In Poland, however, it resembles an attempt to combine water and fire in harmony. The tool that could reforge the caution of officials and the energy of entrepreneurs into an efficient innovation policy still awaits discovery.

OF