Access to finance is not easy for companies in the photonics and semiconductor sector. That sounds familiar to you, no? But did you know that technology clusters play a key supporting role for those companies to realize their goal?
by DSP Valley
A recent report prepared for the DG Research and Innovation and the DG Connect, Financing the digital Transformation – Unlocking the value of photonics and microelectronics, states that the photonics and semiconductor sector offer a tremendous opportunity for Europe since they will shape the way we live and work in the years to come. The study was done by InnovFin Advisory, part of the European Investment Bank Advisory Services. “The photonics and semiconductor sector are essential Key Enabling Technologies (KETs) and represent important building blocks of the next digital revolution”, the study says. Besides that, the study confirms that the access-to-finance conditions for companies in these sectors are challenging. Especially at early- and growth-stage.
Presence of a cluster organization is key
To understand these access-to-finance difficulties, InnovFin Advisory explored through interviews and analysis a range of financing issues relevant to the photonics and semiconductor sector. They distinguish ten findings determining the ease with which the photonics and semiconductor sector get access to financing. Two intrinsic sector characteristics make financing more difficult: technological complexity and challenges of scaling the business. Eight findings concern financing levers of the access-to-finance landscape. According to the study the key financing lever for the photonics and semiconductor sector is the presence of a technology cluster. Cluster organizations contribute in a significant way to the development of photonics and semiconductor companies. Based on the interviews conducted, InnovFin Advisory notes 62% referencing the important supporting role of these technology clusters.
The technological complexity and less compelling investment characteristics of the photonics and semiconductor companies make financing more difficult.
Networking and guidance
The presence of cluster organizations is important because a number of them operate across Europe with a specific focus on supporting photonics and/or semiconductor companies. Among the cluster organizations mentioned are our partners Silicon Saxony and Minalogic, but also DSP Valley. Together with those two clusters, DSP Valley is seen as one of the most successful clusters in Europe. Based on discussions with representatives of the technology clusters, and with companies connected with them, the study states the contribution of clusters is also important in terms of networking. Clusters connect entrepreneurs with other entrepreneurs, corporate players, financing partners, potential talent, etc.
Clusters connect entrepreneurs with other entrepreneurs.
Another reason why clusters play such an important role is the fact that they provide companies with specific guidance and advice in terms of financing, the study says. They do that for example by helping companies understand which public grants or other financing programmes they may be entitled to.
Access to infrastructure and to opportunities
According to the report the support of clusters can especially be of value to early-stage companies, but also to more established players seeking connections/access to niche solutions and talent. For financing intermediaries, InnovFin Advisory notes that clusters provide more centralized access to potential opportunities in a single industry.
Also more established players seeking niche solutions acknowledge the value of clusters.
Geographic location as evidence
Evidence of the positive impact of cluster organizations, the researchers found through the geographic location of photonics and semiconductor companies and examples of corporate investment. Photonic and semiconductor companies identified in this study are located in relative proximity to the key European clusters, which is a sign of their importance to broader technology development. Such a finding is also confirmed in an earlier study (the KETs II study). This geographic proximity of course offers clear advantages in terms of knowledge exchange, networking, etc.
The most important semiconductor clusters are concentrated in Germany, France, Netherlands, Belgium and Italy. The key photonics clusters are located in Germany, the UK and France.
A lot of photonic and semiconductor companies are located in relative proximity to the key European clusters.
In its conclusion, InnovFin Advisory states that since the photonics and semiconductor sector are essential building blocks in the next wave of digital innovation, the access-to-finance conditions for these KETs companies have to be improved. Therefore the need for better coordination among national funding agencies and clusters is paramount.
Financing the digital Transformation – Unlocking the value of photonics and microelectronics –
Prepared for DG Research and Innovation and DG Connect, European Commission
By Innovation Finance Advisory, European Investment Bank Advisory Services
Björn-Sören Gigler, Alberto Casorati and Arnold Verbeek