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08.03.2020

Investment in innovation

When Innovation or High Technologies concepts are used, it is assumed that we are talking about something completely new. However, from the investment point of view, innovative developments must fall on sectors and technologies already well-explored and tested. In fact, the term innovation means “an innovation that ensures an increase in the efficiency of processes, an improvement in product quality as demanded by the market”.

Market demand is a key concept for any business. And here, despite all the innovation trend, the whole process is moving towards “invest in something that is already profitable” principle”. If a business idea has no working prototypes, it is incredibly difficult for it to raise the funds, despite all the efforts of Skolkovo, venture funds, Innoprom, government-supported programs, etc.

Entrepreneurs are welcome to improve something already existing. Sadly, it is the opposite when it comes to identifying and satisfying a new need. They ask you why? Roughly speaking, if there is one successful restaurant, it is easier to open another one next door. Let there be robots instead of human waiters. This is not a bad thing; this is a clear business idea. Funds are always cautious, especially big institutions, even if they focus on innovation and high technology. It represents an extensive, flat-structured development.

Apple is an example of an intensive development. Their idea of a smartphone disrupted the market where Nokia and Motorola were dominant. Car sharing service, on the one hand, and Autonomous Vehicles, on the other, will lead in the near future to the emergence of a completely new sector of transport services. It will seriously move back the usual services, like a taxi or Uber.

Apple had its own funds to develop the iPhone. Funds will also be raised by those companies which decide to cross Autonomous Vehicle and carsharing concepts, which will find a practical application of augmented reality, which will decide how else to profit from big data technologies, which will apply bioengineering in fields that are unusual for it, etc. One way or another, progress is unstoppable. The only question is the availability of resources.

Technological developments that require R&D (research and development) are always lengthy and almost always expensive. As a rule, to get a prototype takes years of work of a whole team; in the days of the USSR, research institutes were engaged in such work. In modern realities, many processes are streamlined, but still only the world’s largest corporations can afford to do R&D without third-party investments.

What does it mean? It means centralization of promising ideas, their purchase by a few players, a decrease in competition and all the ensuing consequences. We already see these processes in the field of Internet Technologies, where two or three main players have in fact monopolized the market.

At the same time, billions of dollars and euros are sitting in various public and private investment funds, which could, in theory, significantly accelerate technological progress not in breadth, but in depth, and give a chance to truly innovative developments. Moreover, billions are often not required – it is enough just to pay attention to promising projects that fully meet the requirements for funding. Unfortunately, they get rejected for one and only reason: there are no products similar in design.

Investment in innovation

A likely advantage in the eyes of innovation-oriented investment funds and venture capital, often becomes the only obstacle. Paradox.