Financial support systems 176

Access to venture capital

General access to venture capital

The access to capital is generally good in Sweden. However, as far as the biotechnology sector is concerned it is claimed that there is “relatively poor

583

Bergqvist H., Dolk T., Sandström A., 2007.

584

availability of local and foreign capital” and this is perceived by some as a cluster weakness585. The biggest barrier to starting new companies is claimed to be a lack of financial support586 and the biggest threat to the Uppsala Biotech Cluster is claimed to be insufficient financing, as shown in figure 9.9587. According to several respondents, the most important task is requesting an actor to take on the responsibility of attracting venture capital inflow to the region588. Uppsala Bio is not perceived as increasing the inflow of investments over the period 2004-2006, however it should be remembered that this is not their primary objective589. Financing is also said to be a problem for the more mature companies that have already shown promising development. It has been suggested that difficulties in raising new growth capital/venture capital could be overcome by more

collaboration with investment companies listed on the stock market. That way, the inflow of capital does not necessarily have to come from the same sector or geographical region590.

Figure 9.9. Responses from the Uppsala biotech cluster regarding major threats to the cluster.591

Public funding

The public investments in the UIC incubator have had high returns. In 2006 the public return on investment, ROI, was 7.9% and the UIC incubator invested SEK 93 million592. Co-financing is often required among the public 585 http://www.uppsalabio.com/graphics/8494.pdf page 14. 586 http://www.uppsalabio.com/graphics/8494.pdf page 33. 587 http://www.uppsalabio.com/graphics/8494.pdf page 32. 588 http://www.uppsalabio.com/graphics/8494.pdf page 34. 589 http://www.uppsalabio.com/graphics/8494.pdf page 22. 590 Stuns, 2006, page 6. 591 http://www.uppsalabio.com/graphics/8494.pdf page 32 592 UIC, 2007a.

financiers. Almi Uppsala is a public financer that offers loans to existing companies as well as startups. To receive a loan, funding must have been denied from other sources. Almi then acts as a complementary financer593. Public funding often also requires there to be collaborative research between academia and industry, like Uppsala Bio’s research support product Bio-X for instance. Uppsala Bio has been allocated SEK 10 million per year over ten years from VINNOVA and an additional SEK 4 million from regional partners and SEK 6 million per year from regional partners in the form of work. The largest share has been allocated to the research support product, Bio-X594. According to Uppsala University, such requirements for

collaboration between industry, universities and the public sector must often be fulfilled in order to receive funding to specific projects at the University. Uppsala University has been successful in receiving such earmarked

funding from the Swedish Foundation for Strategic Research595. Another source of public funding is Innovationsbron, which provides financial support and advice in the very early stages of research commercialisation 596

.

A recent initiative is Uppsala Seed Capital, which will provide funding to very early-stage growth companies to enable them to develop prototypes, file a patent etc. The fund holds an estimated capital of SEK 15-30 million and there is a 50/50 distribution between public and private funding597.

Strengths and weaknesses related to the financial support system

Although access to venture capital is generally good in Sweden today598, this activity demonstrates a perception within the Uppsala biotech cluster of a lack of financing being the biggest barrier to starting new companies and the largest threat to the cluster. There is also the claim that the most

important task of business support organisations should be to attract capital to the cluster. It is interesting then to consider why the generally good access to VC is not available to some companies. A mismatch between the needs of the companies and the amount investors are willing to invest has been pointed out on a national level599 and may apply to ULIS as well. Another interpretation could be that there is no lack of capital but that many companies are not growing organically due to other shortcomings. Another claim is that startups are being based on ideas that are not commercially viable600 and thus have a hard time accessing VC. The industry structure of

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http://uppsala.almi.se/finansiering.html.

594

Mail conversation with Stuns, 200801.

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Uppsala Universitet, 2003, page 23.

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http://www.Innovationsbron.se/Bazment/926.aspx.

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UIC, 2007b.

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Interview, Williams Ylva, Invest in Sweden Agency, 200705.

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Interview, Williams Ylva, Invest in Sweden Agency, 200705.

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ULIS shows a large amount of small companies that are not profitable. The restrictions to growth for these companies could be that many should not have passed through proof of concept601. However, the return on investment of public funding in UIC has been high. It could also be argued that even for commercially viable companies there are obstacles to growth that should be addressed as well as problems occurring at a later stage than supported by publicly-funded business support products. According to Uppsala Bio, potential obstacles are better approached through a stimulating approach than a business funding one602.

This activity has identified a possible gap in the innovation system

concerning business support directed to the growth of established but very small companies. It is not necessarily an equity gap; there could be

structures on a national level that should be improved and have positive effects for small companies with constraints to growth. According to Uppsala Bio, innovation in procurement could be very important to companies such as these small ones.

The current public actors in ULIS were found to be predominantly focusing on early-stage business support and their problems in accessing funding. If there actually is a mismatch between the presumably good access to funding from investors and the size of investment usually requested from Swedish life science companies, then it seems there is a Catch-22 situation: The small companies do not grow in terms of employees, profitability and product/patent portfolio because they have difficulties in accessing venture capital, whereas the investors are unwilling to invest in companies that are small (in terms of patent and product portfolio etc.603) whilst the issue lies beyond the scope of what the publicly funded business support actors reason that they could or should address. Apart from an obvious need for critical evaluation of how public capital should be used in selective support of industry, such publicly funded support may actually restrict initiatives emerging from industry by competing with them and the specialist business support consultancy sector604. Uppsala Bio highlights the importance of stimulating organic growth in the industry605. These questions and dilemmas have also been identified on a national level in SLIS.

Another dimension could be added to this discussion. In Cambridge, many companies that already have developed a technological platform still chose to secure their financing by conducting contract research instead of putting a

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Interview, Sandström Anna; VINNOVA, 20080116 and Interview, Williams Ylva, ISA, 200705.

602

Intervew with Uppsala Bio 20080205.

603

Interview, Williams Ylva, ISA, 200705.

604

Interview, Sandström Anna; VINNOVA, 20080116.

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product on the market. There are several reasons for this, as described in the Cambridge chapter, but the most cited in the interviews was a lack of financing. Consulting offers a more profitable and secure financing opportunity than developing a product. Based on a combination of this Cambridge result and a potential funding lock in ULIS, it is plausible that the industry structure of Uppsala will become more similar to that of Cambridge with a very large consulting sector including many CRO companies. According to the Department for Commerce and Industry at Uppsala City Council, the consulting sector is currently expanding within life science. For the individual company consuming the services and products of a CRO for instance, this could have the benefit of access to knowledge without employment606. It might be interesting to analyse this potential development in connection with the development of employment in the sector.