Bank Austria’s Foundation and Start-up Initiative: a growth pact for Austria

  • When it comes to private venture capital, patent applications or business start-ups, Austria lags behind by international standards
  • Just 0.5 percent of domestic foundation assets could generate additional private venture capital of EUR 350 million
  • This would be a positive trigger for growth on the whole – with EUR 3.3 billion more in economic output and the creation of up to 46,000 additional jobs
  • Foundations and wealthy people are willing to provide capital in principle, but legal and fiscal framework conditions have to be modernised
  • Participation in research results and a more simplified and standardised funding system is required if basic research is to be given a boost and private investors are to be won over
  • Bank Austria as a platform with expert support for intermediation between start-ups seeking capital and private investors

“The only way that we can guarantee permanent prosperity and competitiveness in the global environment and prevent the migration of well-trained young people is through demonstrating a high degree of innovative strength and conducting research and development activities. A socially balanced company also requires sufficient support from charitable projects,” emphasises Willibald Cernko, CEO of Bank Austria, before going on to add: “But in Austria, we still believe that the state should be exclusively responsible for funding these key areas. What we need here is a serious change of mind-set. After all, we also need investments from private investors if we want to keep pace with our international competitors.”

The only way to successfully revive the start-up and research scene, to get our country back into pole position in terms of international competitiveness and to create more jobs is through the provision of private venture capital. The shape of modern framework conditions to generate incentives for private investors to invest in basic research, business start-ups or charitable projects was discussed yesterday during a conference, which was held at Vienna’s Old Town Hall and attended by a number of high-profile individuals. To name but a few, those present included State Secretary Harald Mahrer, Prof. Markus Müller, Vice-Chancellor of the Medical University of Vienna, Prof. Eduard Lechner from the University of Vienna, Norbert Zimmermann, Chairman of the Supervisory Board at Berndorf AG, Wanda Moser-Heindl, CEO of Unruhe Privatstiftung, Michael Krebs, Managing Director of IMBA and, of course, the hosts – Willibald Cernko, CEO of Bank Austria, and Robert Zadrazil, CEO of Bank Austria Private Banking.

Too little private venture capital and too few patents and business start-ups – Austria is losing ground in the international arena
With a 2.9% of GDP share in gross domestic expenditure on research and experimental development, Austria is still below the Lisbon objective of 3%. Given the ever-more global competition in innovations, the country is running the risk of high-quality research migrating from Continental Europe, following in the footsteps of extensive parts of its goods production industry. It is for this reason that, according to current figures published by the University of Vienna, up to 10,000 (net) of Austria’s best-trained young people leave for leading research nations each year. This trend is also reflected in patent applications, where Austria is lagging far behind other countries with 243 patents per one million inhabitants. By comparison, Switzerland, for instance, applies for 832 patents per one million inhabitants.

Virtually all of the research expenditure forecasted for 2014, which amounts to EUR 9.3 billion, is being financed in Austria by the public sector, domestic companies and funds from abroad. In contrast, the private non-profit sector has by far the smallest financing volume, with a 0.5 percent share in overall R&D expenditure. This contribution is very low, especially when compared directly with other European states.

Private capital would be available and could achieve a great deal
According to estimates of shareholdings, real estate and capital assets, the approximately 3,250 private foundations in Austria alone currently have a total volume of around EUR 70 to 100 billion. If these were also to invest a mere 0.5 percent of their assets into research, innovation and start-up companies, an additional EUR 350 million would be available. This would result in an enormous development boost for Austria as a research and business location, especially given the fact that this total would be far higher than the total amount of Austrian private venture capital available at present. A research boost such as this would also have an extraordinarily positive impact in macroeconomic terms. “The multiplier effects estimated by the Austrian Institute of Economic Research (WIFO) and the Austrian Institute of Industrial Science (IWI), which amount to EUR 350 million in additional R&D capital, would increase Austria’s total economic output by up to EUR 3.3 billion and boost employment by up to 46,000 full-time jobs,” explains Stefan Bruckbauer, Bank Austria’s Chief Economist.

Private foundations and wealthy people are willing to invest in principle
The common prejudice of wealthy people only being interested in increasing their own prosperity and not wanting to part with any of their assets is not something that Robert Zadrazil, CEO of Bank Austria Private Banking, agrees with: “From holding many a discussion with customers, I know that many wealthy people would be very keen in principle to invest some of their assets into research, innovation, start-ups or non-profit projects,” he says, before adding: “Together with experts, we have realised that investors having influence over a project, a contemporary legal framework and suitable fiscal incentives are generally essential conditions for securing private commitment. But these conditions do not exist at the moment.”

For example, it should be possible to claim the private venture capital provided for research projects, start-ups or charitable projects better in fiscal terms. Also, it is difficult to understand why non-profit activities are not entirely exempt from taxes. Innovative fiscal approaches, such as being able to provide some tax yields or research funding for risk capital and/or non-profit purposes, seem to be worthy of discussion at the very least. On the other hand, the legal corset for private foundations has to be tightened and reformed over the coming years. Here, the frequently-encountered formulation for unconditional capital preservation in declarations of foundation is a major obstacle. For non-profit commitment, donors and beneficiaries should have a greater and more sustainable influence in the foundation.

Basic research: trapped in the funding jungle
Major administrative obstacles when submitting applications for funding result in many projects not even being submitted at all. Also, duplications in the overwhelming funding jungle are something of a hindrance to efficient evaluation. These problems could be resolved by means of standardising the funding system and trimming down the amount of administrative work required. And to find private investors who support the state in its funding activities, there also needs to be better ways of getting them involved in the research results. After all, private investors are less keen to enter into an investment whereby they have to assume from the outset that they will no longer get back the capital they invested.

Bank Austria as a hub for start-ups and private investors
With 1,145 foundations, Bank Austria is a clear market leader in terms of assisting private foundations in Austria, and, as a leading bank for corporate clients, it has a fantastic network of contacts in the Austrian economy. These two strengths should be increasingly interconnected in future and be institutionalised in the regular exchange of experiences and opinions between potential investors and borrowers.

Today, private venture capital in Austria amounts to EUR 28 million, or EUR 3 per capita. The equivalent figure in France, for instance, is EUR 12 per inhabitant and year. This is not only associated with the lack of legal framework conditions and fiscal incentives, but also with the fact that, generally speaking, wealthy people and foundations do not have sufficient knowledge of the start-up scene, while start-ups in turn have little access to private investors.

“In the United States or Great Britain, banks commonly act as intermediaries of non-profit investments in science and research or in social projects,” states Michael Krebs, Administrative Director at the Institute of Molecular Biotechnology (IMBA). Robert Zadrazil has a similar opinion: “On the one hand, we know people and institutions with available private capital, and on the other hand, we speak to researchers and companies with innovative ideas who are on the hunt for capital.”

From this exclusive intermediary role, Bank Austria is currently evaluating several ways of ideally combining the interests of both private investors and start-ups seeking capital. It is therefore examining the idea of an independent Bank Austria platform to facilitate exchange between start-ups and investors, as well as cooperation with existing platforms. As Austria’s biggest bank for corporate clients, Bank Austria would also like to enable companies to have access to start-up investments which are either an innovation or build upon their own business models, and to provide start-ups which are still in their infancy with business support and assistance in a prompt fashion.

Enquiries: Bank Austria Media Relations Austria
 Volker Moser, Tel.: +43 (0) 50505 - 52854
 E-Mail: volker.moser@unicreditgroup.at