Brussels Studies: Financing for new technology-based firms in Brussels

Interested to learn more about financing for the new technology-based firms in Brussels? Brussels Studies published a new article on this topic.

New technology-based firms are created with an aim to make use of a technological invention or innovation. They play a key role in the materialisation of new technologies and innovations among specific products and services. However, the development of this type of firm is not simple. They endure considerable research and development costs, and the technological complexity and the uncertainty regarding their viability may put off investors and limit the available funds.

These difficulties in the initial development phase are amplified in Europe where entrepreneurial capital is less available than in the United States. The public authorities are aware of this situation and intervene by supplementing private financing. For several years, Brussels-Capital Region has equipped itself with financial instruments intended for new technology-based firms. The regional government has reaffirmed repeatedly that it wants to make Brussels the “Belgian and European capital of the spirit of entrepreneurship and innovation”. All of this has materialised in the 2016-2020 Regional Innovation Plan, which confirms the increase in budgets dedicated to these schemes, which are used frequently during the first stages in the development of technology-based firms.

Nevertheless, despite these efforts, the complexity of the regional system is often underlined, and the ongoing difficulty for entrepreneurs to move between the schemes has been pointed out. It is therefore important to understand how new technology-based firms obtain financing and how they use public aid.

This is the subject of the 131st issue of Brussels Studies, in which two management engineers and economists with doctorates from Université libre de Bruxelles, Nicolas Pary and Olivier Witmeur, examine how entrepreneurs in Brussels make use of the existing schemes based on case studies, and make recommendations to improve the functioning.

Although they are limited to the sample, the results underline varied financing for new technology-based firms in Brussels from the beginning phases. Many sources of funds are requested so that these companies are able to obtain financing even if several attempts are sometimes necessary. In the case of difficulties, grants are an alternative to private financing.

However, the authors draw attention to four points: (1) the availability of grants leading to opportunism, (2) largely informal operational coordination which is fragile as a result, (3) the absence of public capital in the launch phase while grants are widely used in this phase, and (4) inter-regional competition, which leads companies to multiply their locations and contributes to increasing the amount of aid allocated.

Based on these observations and on a focus group with stakeholders in the field, the authors formulate three recommendations. Firstly, the creation of a formal coordination mechanism gathering all of the stakeholders in order to propose coordinated aid and ensure better follow-up. Secondly, the assignment of one public manager for each file, in order to support entrepreneurs throughout their financing process. Thirdly, a refinancing of public loans and capital and a limiting of grants to the pre-commercial phases in order to reduce opportunism, improve the profitability of aid for the Region and accelerate the reinjection of funds in schemes and in the Brussels economy.

References
Nicolas Pary and Olivier Witmeur, “Financing for new technology-based firms in Brussels”, Brussels Studies [Online], General collection, No 131, 11 February 2019.

To read the full article, visit the following link.