O Estoril de declaração no Fórum de Financiamento à Inovação: “Princípios e Boas Práticas de Políticas de Financiamento da Inovação Cadeia de Valor” – Estoril, a 8 e 9 de outubro

Date:   2007-10-12


The European vision of a successful knowledge-based economy, where high potential enterprises can emerge, growth, create employment and improve innovative capabilities, has among other priority issues, a major challenge: – to overcome the imperfect nature of the financial markets.
Meeting this challenge requires a holist view of the financial system, spanning the equity-debt spectrum from both formal and informal risk capital markets, to the bank intermediation process, in order to reinforce the availability of a range of appropriate financing solutions for Small and Medium-sized Enterprises (SMEs) throughout their development life-cycle.

The goal requires the active participation of the entire entrepreneurial infrastructure, including the businesses owners and managers, the financial services industry, government policy makers, academia and the media.

The Estoril Declaration is the result of the Portuguese EU Presidency Forum “Financing Innovation – From Ideas to Market”, a joint initiative between the European Commission and IAPMEI (the Portuguese Agency for SMEs and Innovation), held at Estoril on the 8th and 9th of October 2007.

The Estoril Declaration summarises the principles and good practice policies that help to achieve a more effective integration of the four pillars identified of the financial innovation value chain: – From Ideas to Market; Investment Readiness; The Right Environment; and Savings for Growth.

Lessons from both practical experience and formal research activity by the Members States of the European Union and the European Commission have provided a clear set of policy priorities focused on improving the level and quality of entrepreneurial, small business activity within Europe.

Initiatives should be taken to scan and distinguish the good practices and experiences in this important field. So, the range of measures to stimulate entrepreneurship and innovation can be well known and advocated at all levels of society, and policymakers should make use of them to develop suitable policies.

Current policies are more effectively taken up and implemented across the twenty-seven members of the European Union. To that end, the Estoril Declaration can be used as framework in the context of the renewed Lisbon Partnership for Growth and Jobs that the Commission and the Member States can use when developing, implementing and monitoring policies.


The European Union needs to continue to develop a world-class environment supporting innovative and high growth Small and Medium-sized Enterprises (SMEs); an environment in which competitive markets work efficiently both within and across borders to allocate a range of appropriate forms of finance and related services, from professional and well informed providers to similarly competent entrepreneurs and their businesses at all stages of the enterprise life-cycle.

From Ideas to Market

I. Successful entrepreneurial economies need a ‘can do’ attitude to transforming interesting and novel ideas and discoveries into new products and services to both existing and new customers. The full realisation of Europe’s innovative resources and their delivery to world markets requires the ‘catalyst’ of a strong entrepreneurial culture to be supported by efficient financial markets

The conference recommendations to achieve this:

Entrepreneurial culture and new business formation should be promoted as an attractive and feasible career choice. This should be widely fostered by politicians, businesspeople, academics, students, and those teaching and advising current and future generations of European citizens.

Spin-out activities that commercialise intellectual property from universities and the research community should be encouraged. In particular use should be made of academic-private funding arrangements that recognise the demanding requirements of professionally-run and commercially attractive fund structures. Effective structures are likely to require cross-institutional collaboration, co-financing and risk sharing schemes.

The support of Europe’s financial services community is essential in the identification and industry adoption of practicable means by which intangible assets, such as intellectual property, can be pragmatically valued in order to attract additional debt finance and other resources. This is important especially for innovative and technology-based start-ups.

The specific demands of young and growing SMEs should be recognised by enterprise support infrastructures, as well as specialist and expert services. They should also acknowledge the considerable scale and scope of benefits stemming from the active concentration of new enterprise activity into dense and mutually-supportive local and regional clusters.

It is essential that a full spectrum of SME’s life-cycle financial and support services are available for attractive growth enterprises, from ‘seed stage’ incubators through business angels, guarantee societies and debt providers, to corporate venturing and institutional venture capital funds.

Investment Readiness

II. New and growing enterprises should have access to the right resources, as allocated by a free and competitive market. They have to earn investors’ interest and commitment by the greater attractiveness of their businesses profile compared to other available investment opportunities.

The conference recommendations to achieve this:
The enterprises’ internal capabilities to attract investors should be improved and reinforced so that they can supply sufficient, timely and accurate information to financial providers in order to get appropriate financial resources and other related services at competitive conditions. In particular, entrepreneurs, their commercial partners and their advisers need to recognise that Basel II capital requirements for transparency will require a greater effort from all parties to reduce information asymmetries.
It is highly relevant to develop professional mentoring and other advisory support services specially designed to meet the needs of attractive but often inexperienced entrepreneurs seeking external sources of finance.

When enterprises assume the responsibility of adopting appropriately rigorous standards of governance and disclosure, the financial infrastructure may provide the full spectrum of finance and support to the specific needs of early growth, development and the transfer or buy-out of established businesses.

Priority should be given to benchmarking tools to enhance the reputation of the best-performing enterprises, improving their market position and negotiation capabilities among their finance sources, individually or as a reference group.
The critical role of business angels and other informal investors should be recognised and exploited as the largest potential source of knowledge and of stable, early-stage, informal risk capital to young enterprises.

The Right Environment

III. Governments should ensure that entrepreneurial environments in which young firms are created, developed and traded are favourable to entrepreneurs and investors, avoiding inappropriate and costly legislative, fiscal or regulatory systems. Thus, policy makers should actively strive to remove existing barriers and promote new business formation and the growth of existing SMEs. Governments have a key mission in supporting enterprise, but should seek to ensure a subsidiary role compatible with ‘free’ market activity.

The conference recommendations to achieve this:
Legal, fiscal and administrative policy frameworks should directly encourage risk-taking by entrepreneurs and external investors, such as business angels and venture capitalists, also encouraging the entrance of new market players and professionals.

The importance of advisory services, like Business and Innovation Services, should be recognised to foster start-ups and spin-offs through their direct hands-on support. These networks have proven to be of great value to young promising and growing businesses, transforming their business models into robust and consistent ones.
Public authorities should leverage private sector involvement by setting up co-investment funds investing on a pari-passu basis with business angels and private investors.

Increasing levels of cross-border investment should be promoted with the goal of creating a single pan-European market in venture capital and private equity. This requires further legal and fiscal harmonisation or mutual recognition between member states.

The important role of Financial Institutions, in particular of guarantee societies, should be recognised as providers of financial and commercial knowledge to the SME entrepreneur on one side and of specialised risk assessment to the banks on the other.
Importance should be given to the creation of efficient and cost effective systems for the transfer of businesses to new ownership/management in order to ensure the continuation and growth of existing viable enterprises. Such transfer systems should also expedite the timely removal of unsuccessful business ventures from the market, thereby assisting the efficient reallocation of existing resources.

Savings for Growth

IV. Savings should be channelled and long term investments mobilised for investment in SME assets, for example through structured finance instruments. This process should be supported by public risk sharing schemes whenever needed, to encourage private investment into market failure areas where it would be otherwise particularly difficulty to attract a sufficient stock of funding due to the well known information asymmetries and the high transaction costs incurred.

The conference recommendations to achieve this:
The valuable role of banks should be recognised, in particular when they are supported by mutual or public loan guarantee schemes and related initiatives to securitise SME debt is essential as this allows increasing the liquidity within the financial market and the capacity for renewed banking exposures on SME finance.

The practical relevance of venture capital should be emphasised by strengthening the links between business angel groups and investors from the formal sector would facilitate the continued flow of financing for enterprise growth, simultaneously providing opportunities for early stage investor exits.

Venture capital and private equity should be recognised as an attractive asset class for long-term institutional investors, such as pension funds and insurance companies.

There is a need for a single pan-European stock market of sufficient economic scale, liquidity, technical expertise and specialism in high growth/high potential, new knowledge-based firms across the member states. Stock market trading in growing and high-potential companies provides an important source of capital and acts as an exit channel for later stage investors.

Alternative and novel financing instruments are needed to overcome financing problems, including micro-finance, mezzanine, equity and mezzanine guarantees as well as and stock options. Such instruments can be focused specifically on the growth needs of young innovative SMEs.

Estoril, 9th of October 2007

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