23 March 2018

Financing the next generation of “deep-tech” research innovators

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Funding for the high-risk Future and Emerging Technologies, which can revolutionise our lives, is at a crossroads. How will Europe respond?

Remember the cassette Walkman? With streaming services, even MP3 players like the iPod look distinctly passé. Car Sat-Navs used to drop jaws in amazement, but now driverless cars and flying drone taxis are on the horizon. If there’s anything that science teaches us, it’s that we should never think our current boundaries are as far as we can go.

“Without research on a standard phone to improve it, people would not have developed a mobile phone,” says Paul Lukowicz, head of the Embedded Intelligence group at the German Research Center for Artificial Intelligence (DFKI), Berlin. “Things like the internet of things, connected objects – there is a need to allow researchers to think about crazy ideas that could change the world.”

Europe, with its rich scientific history, world-class universities and diverse population, has always been at the crucible of fresh thinking and technological change. But in a globalised world, how can Europe maintain its competitive edge regarding the so-called Future and Emerging Technologies (FET)? The issue was discussed at the recent European Leadership through Disruptive Technologies event held in Brussels on March 7, 2018.

Breakthrough innovation, in particular what has been dubbed the “deep-tech” of autonomous systems, artificial intelligence (AI) and virtual reality, requires large investments over a significant time period, a decade or more. But to many the available venture capital is too small, fragmented and short term.

Bank lending, Europe’s predominant investment channel is inherently risk averse. “Public support for innovation is perceived as complex, slow, designed for R&D and fails to bridge the gap to private investment,” says Hermann Hauser, chair of the High Level Group of Innovators, in the paper Europe is back. Accelerating breakthrough innovation. The group of experts is charged with supporting innovators and entrepreneurs through the European Innovation Council (EIC).

Without a recognition of the role of disruptive technologies in transforming our lives for the better, such technologies will never achieve their potential. Europe needs continental scale investment to compete at the global level -- it cannot compete with the US or China using mere national or local initiatives.

Fortunately, the European Union has developed policy frameworks, led by the technology sector itself, to encourage innovation and make Europe a global leader in transformative science. The EU’s Horizon 2020 programme has earmarked €2.5 billion from 2014-2020 to spur growth in the FET sector, resulting in scientists in 40 countries working on more than 180 forward-looking research projects.

But experts agree that the next programmatic budget will have to take a quantum leap to maintain Europe’s leadership, and taking such a step could have a dramatically positive effect on tech businesses, especially SMEs.

“It’s very difficult to do return on investment and allocate a large amount of money in the early stage of a small enterprise towards these high-risk projects,” says Olivier Frey, project manager of Microphysiological Systems at InSphero AG, a Switzerland-based healthcare tech firm. “And this is where FET projects are jumping in, giving the possibility for small companies to do research that may change the world in the future.”

For many independent experts like the High Level Group of Innovators, the goal of a new research policy is to increase the number of EU startups that scale up to become larger than SMEs (more than 250 employees) and larger than small mid-caps (more than 500 employees). Breakthrough innovation should create jobs, not just market value. One of the group’s main recommendations is to simplify and rationalise the existing multitude of schemes with a small set of awards that target deep-tech innovation.

Moreover, one idea recently suggested by French President Emmanuel Macron is the establishment of a EU innovation agency to drive economic growth and job creation through targeted assistance to the FET sector. This looks beyond economic expansion and to boost the high-quality employment market, potentially fostering the next generation of digital giants to challenge the first and second generation of tech titans in the US. It could also prevent European start-ups from relocating to the US to access larger financing pools.

“We must invest in basic research but also in the transformation of research into technologies,” says Maria Chiara Carrozza, professor of Industrial Bioengineering at the Sant’Anna School of Advanced Studies, Pisa, Italy. “That means taking high risks and to have high benefits. It’s not possible to have high benefits and high value without taking risks.”

With support from the European Parliament, universities, civil society and industry, the European Commission is now looking towards the next phase in the evolution – or should that be revolution? – of FETs. Supporters of disruptive technologies want to see the next medium-term funding programme, the successor to Horizon 2020, upscaling support the sector and boosting its economic impact.

“It is estimated that up to €500 billion in business will be generated by connected things, the internet of things. And Europe is still in the game,” Lukowicz concludes.

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