Innovation Blog

Innovation Ecosystem

posted Jun 9, 2012, 1:52 PM by Dragan Boscovic [ updated Jun 9, 2012, 3:39 PM ]

Developing entrepreneurial skills among young engineers should be considered to be of a strategic importance. Young entrepreneurs build innovation capacity within a given region for economic prosperity and its successful integration into global economy.

In order to do so a proper innovation ecosystem has to incorporate the following two pillars:

1. Center for Innovative Technologies, a nonprofit organization having for objective to accelerate developments of carefully selected technology domains and proactively champion their deployment and explorations within specific geographical region and/or technology domain. This organization would provide an incubation environment for individual and institutional researcher, technology entrepreneurs and small businesses owners.

2. Venture Capital Fund, provides angels funds and investments in early-stage of business development which tends to be more risky. The Fund will be governed by the Investment Committee representing the investors. This Fund is instrumental to the entire concept as it needs to install the process rigor and financial discipline, win the trust and attracts both institutional and individual investors as well as ensures success and growth of entire operation.

These two institutions are expected to work hand in hand, however they have to be governed independently in order to preserve discipline in both selection and financing processes.

Center for Innovative Technologies (CIT)

CIT would be created as a nonprofit organization designed to enhance the research and business development capability of individual and collective innovators in Serbia and Montenegro by:

• Encouraging innovations at the institutions of higher educations (Universities and Institutes)

• Bringing regional businesses and institutions of higher education into relationships that promote a climate of cooperation and technological innovation.

• Establishing the assessment process and evaluating the innovations in terms of potential business impact

• Helping create proper business case state for selected innovations

• Connecting the innovators and institutions to the potential investors for “pre-seed” and “seed level” capital necessary to move most promising and high-potential technologies from the proof-of-concept stage to the marketplace.

CIT identifies innovations and makes tools and services available to innovators and early-stage tech companies with a high-potential for technology commercialization, rapid growth and downstream private equity financing. Through close consultation with CIT, the

Innovators and local start ups will be positioned to achieve pre-determined performance milestones required to secure subsequent angel investment and Series A venture capital financing.

To this end CIT will offer the following service and programs:

• Market Research

• Business Plan review

• Team Development and Mentoring

• Business Development

• Strategic Partnering

• Presentation Coaching

Figure 1. Evolutionary Phases for an Innovation

Supporting Ecosystem of Market Regulated Forces

Figure 2 illustrates the feedback structure of the CIT-VC market sector model. The structure consists of five subsystems that interact between each other. The system consists of investors who provide the capital, VCs who use the capital to finance private technology companies, entrepreneurs who own the companies and demand finance capital, CIT who helps selected innovations attract VC’s interests and investors of the public market, who drive the demand of liquidity events of private companies by means of IPO or M&A transactions. The market forces work as follows: Investors allocate money into VC funds, VCs make placements of those funds by investing in private technology companies, noting that it takes time from the initial financing until the investment can be successfully realized in the form of an IPO or an M&A transaction. At the liquidity event all the market participants: investors, VCs, and entrepreneurs realize the bulk of their profits.

The case for the entrepreneurs is somewhat simpler, they are assumed ‘opportunistic’ in the sense that they are also driven by the activity of the public market, but their decision rule simply rests in adapting the size of the investments demanded from VCs to the recent public market conditions. As for the public investors, their decision rule is similar to that of the entrepreneurs. They adapt the price of liquidity valuations to the increase or decrease of activity in the public market. Finally, the adoption of technology companies into the public market diminishes the attractiveness of the sector up to the point where the sector is no longer attractive and the public market window closes. In the proposed model CIT will be receiving share of the ownership in the commercially accelerated companies. The funds/proceeds will be used to expand the variety, quality and breadth of services offered to the entrepreneurs.

In the model, there are lower limits to the values at which VCs normally invest or take a company public; these values are set so that the VC industry would obtain an average return of investment satisfying investors’ expectations. The VCs also have clean up mechanisms which work by writing-off non-performing companies (at a loss) and winding down locked-in investments (with no returns).

Figure 2. Subsystem diagram of the VC-CIT market governed ecosystem

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