AAA Belgium takes a multi-faceted approach to innovation

Belgium takes a multi-faceted approach to innovation

Long-term state investment in infrastructure to support research and innovation has made Belgium one of the leading economies in the world when it comes to nurturing new and innovative businesses. The most recent edition of the Innovation Index, published by the Federation of German Industries, ranked Belgium fourth in the world in terms of attractiveness to foreign investment, while its tax system appeals to potential investors and entrepreneurs alike.

The devolution of power to the three Belgian regions – Wallonia, Flanders and Brussels – plays a key role in the way venturing and entrepreneurship are supported. The local governments set and implement policies regarding state support of startups, collaboration between research institutes and industry, and investment in growing businesses.

For example, the three regions each have their own innovation policy program which dictates, for example, what sectors should receive the greatest level of support, and what subsidies should be made available to new or growing businesses.

•  Wallonia is currently implementing its €2.9bn ($3.16bn) Marshall Plan 4.0, which runs until 2019 and supports the likes of energy efficiency and digital innovation.

•  In Flanders, the coalition agreement implemented in 2014 and running until 2019 has updated the region’s innovation strategy.

•  The Regional Innovation Plan 2016-20 in the Brussels Capital Region was introduced to support innovation in three specific areas – health, the environment and information and communications technologies.

These efforts reflect Belgium’s dealflow, with the top 10 corporate venturing deals and startups from the country’s main research centres focused on these three sectors (see tables above).

Belgium-based life sciences research institute VIB, for example, currently counts more than 1,470 researchers from more than 60 countries who work in close partnership with five universities – Ghent University, KU Leuven, University of Antwerp, Vrije Universiteit Brussel and Hasselt University. KU Leuven is the top-ranked tech transfer unit in Europe and has the Gemma Frisius Funds as well as a €60m ($67.5m) fund to support life sciences spinouts from the Centre for Drug Design and Discovery (CD3).

As Piyush Unalkat, head of technology transfer investments at the European Investment Fund (EIF), said in committing to this CD3 fund in October: “Since its inception in 2006, CD3 has built an excellent reputation within the EU drug discovery community as a translational centre and has developed a promising pipeline of potential new medicines.

“KU Leuven is a first-class academic institution and ranks as the most innovative university in the EU [with more than 100 spinouts]. The EIF remains firmly committed to support the translation of good academic science to the market through providing long-term and patient capital.”

However, despite the volume of spinouts and dealmaking, Belgium has struggled to scale up its startups, with relatively few local and international corporations involved in small numbers of deals for relatively small amounts. Intel and Swisscom lead the pack with four deals each in the country. Perhaps approporiately, Belgium sits between its Benelux neighbours – the Netherlands and Luxembourg – in terms of activity.

Last month’s deal for AproPlan, a Belgium-based construction industry services provider, which raised €5m ($5.6m) in a series A round featuring local property developer Matexi and Inventures, a US-based subsidiary of association management and services company SmithBucklin, is perhaps typical.

Tax policies

While personal taxation levels in Belgium are high in comparison with other countries, the nation’s policies with regard to taxation on investment have long been regarded as favourable.

However, Prime Minister Charles Michel has recently indicated that the Belgian tax system is to be rebalanced, with a cut in personal taxation levels and an increase in taxes on capital. At present, there is no general capital gains tax in Belgium, although in 2016 a speculation tax was introduced on shareholdings that were disposed of within six months. And over the past two years, the withholding tax on dividends, interest and royalties has been increased from 25% to 30%.

Ministers also plan to reform the corporate tax structure, in part to make it fairer for small and medium-sized enterprises (SMEs). However, details of any reforms have yet to be announced and the corporate tax rate remains levied at a general rate of 33%, although smaller firms may be eligible for a reduced rate.

Corporate income taxpayers can claim a notional interest deduction against tax. This is designed to reflect the cost of using capital. In 2017, the rate is 2.13% for SMEs and 1.63% for other businesses.

Belgium offers tax credits for patents and research and development activity, as well as an investment deduction for environmentally-friendly R&D investments.

In February 2017, the government introduced a scheme giving a substantial tax break to private investors in new companies. The startup tax shelter offers a tax reduction of either 30% or 45% on investments in Belgian companies that are no more than four years old. The higher-rate relief is available to private taxpayers who put money into micro-businesses, while the 30% reduction applies to other SME investments.

This represents an extension of a scheme introduced in August 2015 which was originally limited to business angel funding. The new program means investments can be made through the likes of crowdfunding platforms rather than directly into businesses.

Belgium’s regional approach

The way in which enterprise and innovation is supported by the state is more fragmented than in many other developed economies. Belgium has no single national body in charge of the promotion of foreign investment or economic development. Instead, responsibility for these areas is devolved to the three regional governments – Wallonia in the south, Flanders in the north, and the area in and around Brussels.

Wallonia


•  Collaboration between industry and researchers

Wallonia has seven science parks set up to encourage relationships between the region’s universities and the private sector. The first of these to be established was the Louvain-la-Neuve Science Park, which specialises in life sciences, IT and engineering, and which currently supports 280 companies with a total of more than 6,500 employees.

    A number of innovation clusters are also based in the region, including the Automotive Cluster of Wallonia, the Eco-Building Cluster and the Walloon Aeronautical Cluster.

•  Support for SMEs

The Walloon SME Finance and Guarantee Company (Société Wallonne de Financement et de Garantie des Petites et Moyennes Entreprises, or Sowalfin) was set up in 2002 to provide direct investment in small and medium-sized firms as well as capital guarantees and the development of measures aimed at reducing red tape. Since it was founded, the organisation has supported more than 14,000 businesses, 1,875 of which were assisted in 2016.

The Walloon government also offers an Enterprise Feasibility Grant of €12,500 for startups “based on an original idea”.

•  Government-backed venture investment

While Sowalfin offers venture investment to SMEs, the Walloon Regional Investment Society (Société Régionale d’Investissement de Wallonie or SRIW) is Wallonia’s state-owned investment company. It was set up in 1979 and provides funding through both equity and loans to unlisted companies.

In 2015, the most recent year for which figures are available, the SRIW invested €150m in 107 companies, 44 of which were being funded by the agency for the first time.

In April 2017, the SRIW achieved one of its most notable exits of recent years when the drug-discovery company Ogeda was sold to Japan’s Astellas Pharma for €800m. The SRIW had participated in funding rounds for Ogeda in 2012 and 2015.

Flanders


•  Collaboration between industry and researchers

Like Wallonia, Flanders has a number of science parks and institutes which foster collaboration between universities, researchers and private companies. These include Imec, a research and development institute specialising in micro and nano-electronics based in Leuven, and the Flanders Institute for Logistics.

Flanders Innovation & Entrepreneurship (Agentschap Innoveren en Ondernemen or Vlaio) is an agency of the regional government set up in 2015 as the successor to the Agency for Innovation by Science and Technology.

It is the job of Vlaio to fund research projects that involve cooperation between public institutions and industry, and the organisation also offers networking services, a technology transfer program and access to EU funding.

Meanwhile, Flanders Investment & Trade works with the innovation clusters in the region to promote their services to international companies and investors.

•  Support for SMEs

In 2016, the Flanders government announced a series of support measures for small and medium-sized companies, to be delivered through Vlaio. The agency offers subsidies for expenditure on advice or training as well as financial aid of up to €25,000 for “innovation, internationalisation and transformation projects” aimed at boosting company growth.

Introducing the measures, Flemish economy minister Philippe Muyters said: “Entrepreneurs expect just one thing from a government – that they make it as simple as possible to do business.

“I want to see the barriers brought as low as possible to give enterprise every chance. Support from the government needs to be simple and clear, and above all take account of what business needs at any given moment. We want to encourage every entrepreneur to invest in quality, and reduce the barriers to innovate for all companies with potential for growth.”

•  Government-backed venture investment

The Flemish government’s direct investment arm is PMV (Participatiemaatschappij Vlaanderen), which puts money into businesses at all stages of growth. PMV runs the €25m Biotech Fund Flanders, which was founded in 1995 and which recorded an average annual return of 15% in its first 20 years.

In July 2016, the regional government put €30m into ImecXpand, a €100m investment fund set up by Imec to focus on nano-electronics and the internet of things.

Brussels


•  Collaboration between industry and researchers

The Brussels Capital Region is home to a number of technology institutes and science parks. These include the Institute for the Encouragement of Scientific Research and Innovation of Brussels (IRSIB), which funds innovation projects carried out by businesses and research organisations.

•  Support for SMEs

The IRSIB has a number of programs that support innovation in small and medium-sized enterprises, including subsidies for feasibility studies, networking services to give local businesses introductions to international partners, and assistance with launching spinouts.

•  Government-backed venture investment

The Brussels Regional Investment Company (Société Régionale d’Investissement de Bruxelles or SRIB) is the main organisation responsible for government venture investment in and around the capital. It was set up in 1984 and currently has a portfolio of around 300 companies. In 2015, it invested a record amount of just under €15m.

The SRIB has a number of subsidiaries including Brustart, which was set up in 1992 specifically to support startups through loans and minority equity investment, and Brupart, which focuses on SMEs.

The Federal Holding and Investment Company

Belgium’s national government investment vehicle is the Federal Holding and Investment Company (SFPI-FPIM), which was set up in 2006. As of 2015, it had more than €2bn in assets and its role is to manage government shareholdings while also pursuing its own investment initiatives. These are focused on specific sectors, including aviation, real estate, infrastructure and innovation.

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