CROATIA Financing of Innovation

1. CROATIAFinancing of Innovation Knowledge Economy Forum IIIBudapest, March 23-26, 2004

2. Background • Challenges ahead of Croatia in order to join European Union • Future built on: • knowledge, expertise and innovation • capable people and professionals • Key for Croatian development and growth: • Development of innovation and R&D • New technologies, services and markets • Scientific and technological policy, appropriate institutional infrastructure and financing of innovation to support programs

3. Background • Technological development requires financial support by the Government • Ministry of Science, Education and Sport (MSES) initiated financial support program • to create an environment for active layers of society with the best education and greatest prosperity to create knowledge-based small and medium enterprises

4. Institutional Support • Business and Innovation Center of Croatia (BICRO) established by the Government of the Republic of Croatia • BICRO under a direct jurisdiction and within the system of financial support of the MSES • Co-financing operational costs, not development • Framework for creation of a flexible and open network of transfer institutions focused towards the development of knowledge-based SMEs

5. Institutional Support • MSES is a coordinator of the Program for knowledge-based SMEs • professional and financial monitoring of creation, development and final formation of knowledge-based SMEs • assistance and consulting - analysis of the entrepreneurial plan, investment project, business strategy and organizational development • financial resources • identifying domestic and foreign partners • final formation and marketing in Croatia and abroad • BICRO relies on Technology Innovation Centers and other public or private institutions for implementation

6. Financial Support • The Government of the Republic of Croatia approved (03/18/1998) an instrument for founding, development and operation of knowledge-based SMEs as a technology policy measure • Financing innovative ideas of individuals, innovative improvements, prototype solutions and entrepreneurial projects based on new technologies and products • Resources provided in the state, regional and local administration and self-government budgets, and interested economic entities

7. Financial Support • Direct financial support such as: • Direct loans, non-repayable funds for projects, guaranteed loans or other types of direct support • Instruments are created such as: • various investment funds, i.e. seed-fund or risk-capital fund • BICRO coordinates and has jurisdiction for the actual implementation of the technology policy instrument

8. Program HITRA • HITRA (Croatian Program for Innovative Technological Development) program for financing innovation by The Ministry • Initiate national innovation system through permanent development of the three strategic goals: • Fostering science-industry cooperation • Revitalization of industrial R&D • Encouraging commercialization of the research results • HITRA targets the science-industry cooperation and provides a framework for direct cooperation between entrepreneurs/industry and Croatian higher education institutions and research institutes

9. Program HITRA • HITRA is implemented through two complementary subprograms: • TEST - technology projects aimed at pre-commercial development of the new technologies • RAZUM - development of Knowledge-Based Companies aimed at commercial entrepreneurial projects (set-up, development and expansion of a company) based on new technologies i.e. products with higher added value • Managed by BICRO and Technology Centers responsible for the business plans evaluation monitoring projects development

10. Program HITRA • TEST • Individuals and legal entities, researchers and enterprises, are eligible for the TEST • Research carried out at registered scientific research institutions with adequate resources (staff and equipment) • Coordinated by principal investigator with a scientific rank (qualification) • 30% of projects have some kind of cooperation or support from companies out of which 10% is regulated by contracts and mutual agreements regarding investments, intellectual property rights and similar issues

11. Program HITRA • RAZUM • Direct financial and other support for increasing competitive advantage of firms through investment in innovation, R&D and technology • Financing includes a mixture of: • Grants for research and development (30% of the total project value), • Favorable commercial loans, • Conditional loans in case very promising projects or academic entrepreneurship (pin-offs from universities) • Assistance in identification of research teams for needed research activities, organization and monitoring of research services provided to companies

12. Results on the Ground • HITRA program is a pilot project towards research commercialization and results are encouraging • Several completed projects are close to market exploitation (production of wooden pellets as alternative energy resources and ecological treatment of bee’s disease in honey production) • A number of feasibility studies are produced (“Croatian solar house,” wind turbines, laboratory for ecological measurement and services, laboratory for bimolecular medical diagnostic, etc.) • Several projects succeeded in transition to RAZUM program (results to be commercialized via company development) • production of the low-calorie fruit-jams, artificial skin, production of extruded wheat flour

13. Results on the Ground • Program TEST • 400 project application since launch 2.5 years ago • 200 projects selected for financial support • Projects are financed differently based on the level of complexity and maturity: • majority (72%) are financed as simple technology projects • 10% are classified as complex technology projects • 11% of projects received funds for pre-feasibility study as a basis for making final decision of accepting the projects • 7% of the projects received the financing for making the pre-feasibility studies for transfer to RAZUM program (identified as potentially successful entrepreneurial projects)

16. Results on the Ground • Technological projects covered all the filed of science and technology: • 48% engineering • 40% percent are biotechnical and biomedical sciences • other - natural and social sciences • Number of projects with the commercially very challenging potentials: • optical treatment of cancer, neurosurgical ultrasonic equipment, immunology treatments and new vaccines, wind and solar energy, ecological breeding of sheep, center for standardization of psychometric methods, water purification, etc.

17. Results on the Ground • Program RAZUM • BICRO analyzed cca 80 business plans and has selected for financing 21 projects in the last 2.5 years • Entrepreneurial projects different in business activities, scale of investments and even in research intensity: • Research spin-offs - chorale methods in pharmacology, law-calorie fruit-jams • More market oriented - digital CD postcard, waste-water filtration systems • Large-scale projects - The Center for telemedicine, The National network for monitoring of allergens – high impact on Croatian economy

18. Lessons learned • To increase client satisfaction within acceptable levels of bureaucracy • Simplifications e.g. to make application forms much simple and self-explicatory, to substitute current investments studies with the more simple format of business plan, etc. • Information availability • Duration of the project evaluation shorter • Decision making process for investments in companies speeded up • BICRO to build in-house capabilities in project evaluation and follow-up • The list of consultants (experts from universities, RDIs and private sector) should be prepared and maintained by BICRO • BICRO should develop a registration process for this purpose

19. Lessons learned • To shift from medium to high tech projects/clients and R&D based businesses • There is awareness of the need to shift from such projects to high value-added innovative projects • Existing venture capital funds do not support high risk and high-technology projects and start-ups • Required to review and revise the financial conditions of the program to make it more attractive for knowledge-based firms that implement risky technological innovation projects

20. Lessons learned • To create programs for technology development of private sector • RAZUM does not stimulate R&D in companies but finances R&D carried out in RDIs/universities • TEST supports R&D in RDIs/universities, no support mechanisms in the country to stimulate technological innovation by private sector with a high R&D content • It is necessary to finance activities like market research, patenting and training related with the technological innovation activity and to exclude infrastructural expenses like building, land and production equipment • By stimulating investments in R&D and encouraging creation of innovative new technology and knowledge-based enterprises by sharing the risk involved in such activities, will lead to economic growth and social welfare

21. Lessons learned • To change organization of monitoring • Effective mechanism for monitoring the responsible use of public funds (tax payers’ money) for the benefit of economy and society and evaluating the impact of it should be designed and implemented instead of cumbersome application processes and procedures • supervising nature, i.e. guiding beneficiaries to increase the success rate and minimize the risk of failure rather than only checking the aspects related with project implementation and management • enhancing organizational learning - designed while revising the program and implemented by independent experts in the field

22. Lessons learned • To enhance marketing • RAZUM and TEST requires an effective and focused marketing and promotion campaign directed towards target populations • Campaign should be carried out in a systematic and continuous manner and designed in a way to act both as a promotion tool for RAZUM itself and for promotion of innovation and technology based business • Promote government (using BICRO) as a partner of business sector in the field of technological innovation • Marketing and promotion of TEST towards the business sector and matchmaking by marketing the idea of TEST to help finding partners in projects and commercializing the project results

23. Lessons learned • To enable training and consultancy on commercialization of R&D results and intellectual property rights • Research institutes also have little motivation or interest in commercialization of research results whilst individual Croatian researchers and scientists lack strategic and legal support to market their inventions • TEST and RAZUM introduced the issue of intellectual property rights by insisting of commercialization of research results and paying back the income resulted from its the commercialization • Researchers to receive training and consultancy on commercialization of R&D results and on finding local and international markets

24. Lessons learned • To ensure confidentiality • Important to handle this issue since existing and potential beneficiaries of RAZUM and TEST have concerns about possible steeling ideas and having business damages connected to confidentiality • Necessary to develop strategies to keep business secrets and remove such concerns and to build trust • BICRO’s assurance on maintaining and protecting confidentiality should also be emphasized during marketing and promotion of the program

25. Recommendations • R&D tax exemption/postponement  • More incubators and better services for early stage growth • Consultancy and training • Matchmaking between consultants and firms/researchers • Funding for international patenting • Assistance in developing strategic alliances in technology sector • Training intermediary level staff in IT sector • Short-term trainings and workshops on project design, entrepreneurship, business planning, project management, technology, R&D and innovation management, risk management, business planning, IPR management

26. Croatian delegation: • Ms. Mira Lenardić • Ms. Slavica Singer • Ms. Ivana Plenković (not present at KEF) • Mr. Esad Prohić • Mr. Vladimir Paar • Mr. Božićević • Mr. Miljenko Leppee (not present on KEF)