Public Financing of Early-Stage Innovations

Abstract

Financing innovation processes is one of the crucial activities for developing commercially successful products and processes (innovations) and to facilitate their diffusion in the innovation system. This chapter addresses the rationales for public intervention, i.e. in which situations policy should be pursued in the field of financing. The chapter identifies a number of policy instruments for financing innovations that are available by the state, and which public agencies use for funding early-stage innovation. The chapter also describes the provision of risk capital by the Swedish state. This case describes a situation where unintended consequences of the policy pursued in Sweden led to the non-fulfilment of the additionality condition. We also describe how this mistake has begun to be resolved after discussions in the Swedish National Innovation Council. The chapter concludes with a number of important issues with regard to public financing of innovations.