COMMISSION STAFF WORKING DOCUMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A New European Innovation Agenda
Date: 2022-07-05
Institutions: Directorate-General for Research and Innovation, European Commission
Subjects: EU investment, EU strategy, digital transformation, distribution of EU funding, green economy, innovation, new technology, public procurement, research and development

EN 

  EN 

   EUROPEAN COMMISSION  Strasbourg, 5.7.2022  SWD(2022) 187 final  COMMISSION STAFF WORKING DOCUMENT   Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A New European Innovation Agenda {COM(2022) 332 final}  
 
 
1 

1.1 

Context ......................................................................................................................... 2 

Innovation in EU policy ............................................................................................... 2 

Innovation policy: a historical perspective .................................................................. 2 

Innovation and EU policies .......................................................................................... 4 

Towards a coherent and joined-up approach ............................................................... 6 

1.2 

EU innovation performance ......................................................................................... 6 

European innovation scoreboard .................................................................................. 6 

Industrial R&D and the global tech race ...................................................................... 8 

Innovation output ....................................................................................................... 10 

Startups, scaleups and unicorns .................................................................................. 14 

2 

2.1 

Key areas for EU innovation ...................................................................................... 16 

Access to finance for deep tech scale-ups .................................................................. 17 

Limited EU private investment and venture capital ................................................... 17 

Tech funding in the (post-)COVID-19 pandemic period ........................................... 21 

Funds that could be mobilised through the action on later stage venture capital 
financing ..................................................................................................................... 23 

  A fragmented financial market ................................................................................... 24 

IP protection ............................................................................................................... 27 

2.2 

Framework conditions for innovation ........................................................................ 27 

  Regulatory environment matters for innovation ........................................................ 28 

Experimental approaches to regulation ...................................................................... 30 

2.3 

Innovation ecosystems across the EU ........................................................................ 32 

Innovation divide ....................................................................................................... 32 

Interregional collaboration across the EU research and innovation ecosystems ....... 42 

2.4 

Deep tech talents ........................................................................................................ 48 

EU international and intersectoral circulation of talents ............................................ 48 

EU investment in talent and EU labour market trends ............................................... 53 

2.5 

Data Informed Policy and Policy Support ................................................................. 63 

  Data and monitoring for innovation policy ................................................................ 63 

  Design, implementation and governance ................................................................... 68 

Innovation procurement ............................................................................................. 71 

1 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1 

CONTEXT 

Europe  is  facing  global  long-term  challenges  such  as  climate  change,  loss  of  biodiversity, 
ageing  population,  declining  productivity  growth  and  increasing  inequalities.  Unless  these 
challenges are effectively addressed, they will affect the wellbeing of Europe’s population and 
reduce our choices for the future. Innovation is vital to tackle these challenges. It results from 
complex  relationships  among  actors  in  the  innovation  system,  which  includes  enterprises, 
universities  and  research  performing  organisations,  such  as  government  institutions  and 
research  and  technology  organisations  (RTOs).  Europe  needs  innovative  solutions  in  areas 
like health, digital technologies, space & defence, industrial transformation, resilient societies, 
natural resources, energy, mobility, environment, circularity, food, low-carbon economy and 
security. For example, the success of our ambition to reach the net-zero emission objective by 
2050  crucially  hinges  on  development  and  widespread  use  of  new  technologies.  Innovative 
solutions  –  including  as  regards  product,  organisational,  process  or  social  innovation  –  also 
enhance  both  economic  and  environmental  efficiency  while  developing  new  sustainable, 
circular and inclusive ways to satisfy human needs and wellbeing. As a result, innovation is at 
the core of the sustainable development and competitiveness of our economy and supports the 
creation  of  new  and  better  jobs  and  the  development  of  knowledge-intensive  activities. 
Overall, innovation is key in a global context that can accelerate the transition to sustainable 
development, while improving our well-being, reducing inequalities and ensuring longer-term 
prosperity. 

1.1 

Innovation in EU policy 

The  EU  has  recognised  the  importance  of  new  knowledge  and  breakthrough  innovation  for 
the green and digital transformation that is underway. Innovation policy has been a subject of 
Commission initiatives in its own right, but has also been addressed in the frame of the work 
on the European Research Area (ERA), which aims to create a single EU market for research, 
innovation  and  technology.  Moreover,  due  to  the  cross-cutting  role  of  innovation,  it  is  also 
addressed  in  a  number  of  sectoral  and  other  cross-cutting  policies,  including  the  European 
Green Deal, digital, economic and education policy and global issues. 

1.1.1 

Innovation policy: a historical perspective 

While  the  roots  of  the  EU’s  engagement  with  innovation  policy  go  back  to  the  1950s  and 
1960s1,  the  policy  field  took  centre  stage  in  the  context  of  the  Europe  2020  Strategy.2 
Launched  in  2010,  in  the  midst  of  the  financial  and  economic  crisis,  the  strategy  aimed  at 
setting  Europe  back  on  track  for  “smart,  sustainable,  inclusive  growth”.  One  of  the  seven 
flagship initiatives announced as part of the Europe 2020 Strategy was the Innovation Union.3 
This was the first time the European Commission had presented a comprehensive innovation 
strategy. It aimed to improve conditions and access to finance for research and innovation and 
to  ensure  that  innovative  ideas  are  turned  into  products  and  services  that  create  growth  and 
jobs.4 Progress tracked by the annual State of the Innovation Union Reports showed that by 
2015, the Innovation Union had succeeded in introducing a more strategic and broad approach 

1 Ulnicane, I. (2016), ‘Research and innovation as sources of renewed growth? EU policy responses to the crisis’, Journal of 
European Integration, 38(3), pp. 327-341. 
2 An early foray in innovation policy was the European Commission’s Green paper on Innovation in 1995. 
3 SEC(2010) 1161, Europe 2020 flagship initiative Innovation Union. 
4 MEMO/10/473, Turning Europe into a true Innovation Union. 

2 

 
 
                                                 
to  innovation,  building  momentum  and  both  mobilising  stakeholders  and  mainstreaming 
innovation on different policy levels (European, national, regional).5 

In 2014, this approach was complemented by the Communication on research and innovation 
as sources of renewed growth.6 Noting that the EU had increased its funding for research and 
innovation  in  its  budget  2014-2020,  but  that  several  Member  States  had  cut  funding  due  to 
their  fiscal  consolidation  efforts  (following  the  global  financial  and  economic  crisis),  the 
Communication aimed at enhancing research and innovation as drivers for renewed growth by 
“raising  the  quality  of  investments”  and  strengthening  the  overall  innovation  ecosystem. 
Building on this, the Commission put forward a renewed European agenda for research and 
innovation  in  20187  setting  out  concrete  actions:  it  aimed  at  ensuring  essential  public 
investment  and  stimulating  private  investment,  making  regulatory  frameworks  fit  for 
innovation,  making  Europe  a  frontrunner  in  market-creating  innovation,  setting  EU-wide 
research  and  innovation  missions,  supporting  rapid  dissemination  of  innovation  and  uptake 
throughout  the  Union,  and  investing  in  skills  at  all  levels  and  empowering  European 
universities to become more entrepreneurial and interdisciplinary. 

The work of advancing the European Research Area (ERA) creating a single EU market for 
research,  innovation,  and  technology  also  made  important  contributions  to  strengthening 
innovation  in  Europe.  First  launched  in  2000,  ERA  was  at  the  heart  of  the  Europe  2020 
Strategy  and  the  Innovation  Union  flagship.  In  2012,  the  Commission  stressed  the  need  to 
reinforce ERA notably by focusing on the role of knowledge for innovation. It put forward the 
objective  of  reducing  brain  drain,  especially  from  weaker  regions,  and  reducing  the  wide 
regional  variation  in  research  and  innovation  performance,  with  the  goal  of  achieving 
excellence  across  the  whole  Union  through  smart  specialisation.8  This  approach  links 
innovation  policy  with  regional  policy.  It  aims  for  regions  to  develop  smart  specialisation 
strategies  identifying  the  areas  that  offer  regions  the  best  chance  of  strengthening  their 
competitiveness.  It  promotes  more  effective  use  of  public  funds  while  stimulating  private 
investment  to  reach  a  critical  mass  of  research  and  development  activities  as  well  as 
innovation  resources.9  In  2020  and  twenty  years  after  ERA  was  first  launched,  the 
Commission’s  Communication  A  new  ERA  for  Research  and  Innovation  took  stock  of 
achievements  and  persisting  shortcomings  as  well  as  identified  new  challenges  for  research 
and innovation  policy such as the green and digital transition  (twin  transition) and recovery 
from  the  COVID-19  pandemic.10  To  meet  these  challenges,  the  Commission  suggested  to 
prioritise investments and reforms (including reaffirming the target of 3% of EU GDP to be 
invested  in  R&D)  and  to  increase  competitiveness  as  well  as  the  speed  and  depth  of  the 
recovery;  to  aim  at  making  research  and  innovation  systems  across  the  EU  excellent  and 
stronger; to improve how research and innovation results are translated into the economy; and 
by  deepening  ERA  by  moving  from  a  policy  coordination  approach  towards  deeper 
integration between national policies. In November 2021, the Council adopted conclusions on 
ERA  governance  structure  and  the  ‘Pact  for  research  and  innovation  in  Europe’,  thereby 
completing a deep reform of ERA.11 

As this short overview has shown, the toolkit of EU innovation policy has expanded over the 
years  and the institutional  landscape has changed with  it. With its  Innovative Europe  pillar, 

5 European Commission (2015), State of the Innovation Union 2015. 
6 COM(2014) 339, Research and innovation as sources of renewed growth. 
7 COM(2018) 306, A renewed European Agenda for Research and Innovation. 
8 COM(2012) 392, A Reinforced European Research Area Partnership for Excellence and Growth. 
9 COM(2010) 533, Regional Policy contributing to smart growth in Europe 2020. 
10 COM(2020) 628, A new ERA for Research and Innovation. 
11 COUNCIL 13701/21, Council recommendations on a Pact for Research and Innovation in Europe; COUNCIL 14308/21, 
Council conclusion on the future governance of the European Research Area (ERA). 

3 

 
                                                 
Horizon  Europe  has  given  rise  to  both  existing  and  new  tools  to  support  start-ups,  scale-
ups12 and Small and Medium-Sized Enterprises (SMEs). The European Innovation Council 
(EIC),  newly  established  in  2021  and  with  a  budget  of  €10.1  billion,  aims  to  support 
innovation  throughout  the  whole  innovation  lifecycle,  from  the  early  stages  of  research  to 
proof of concept, technology transfer, and the financing and scaling up of start-ups and SMEs. 
The  European  Institute  of  Innovation  and  Technology  (EIT)  took  on  additional  tasks, 
building  on  its  well-established  and  robust  pan-European  ecosystem,  by  establishing  new 
Knowledge  and  Innovation  Communities  (KICs)  such  as  in  the  area  of  culture  and  the 
creative  sector,  putting  more  emphasis  on  addressing  regional  imbalances,  and  looking  at 
increasing  the  entrepreneurial  and  innovation  capacity  of  higher  education  institutions.  Via 
the  European  Innovation  Ecosystems  initiative  of  Horizon  Europe,  the  EU  also  aims  to 
create  more  connected  and  efficient  innovation  ecosystems  to  support  the  scaling-up  of 
companies,  encourage  innovation13  and  stimulate  cooperation  among  national,  regional  and 
local innovation actors 

1.1.2 

Innovation and EU policies 

Next to innovation policy in its own right and the work on the ERA, innovation is also a key 
element in many  policy areas. Recent noteworthy examples include: 

  European  Green  Deal:  the  need  for  boosting  investment  and  innovation  is  widely 
recognised  in  order  to  achieve  the  objectives  of  the  European  Green  Deal,  which  is 
the overarching EU policy driving the green and digital transition. To facilitate new 
technologies,  sustainable  and  circular  solutions  and  disruptive  innovation,  the 
Commission  will  use  the  full  range  of  instruments  under  the  Horizon  Europe 
programme  as  well  as  four  ‘Green  Deal  Mission’.14  Furthermore,  the  Fit  for  55 
package foresees using revenues and regulations to mitigate the impacts of the green 
transition,  while  boosting  innovation  through  the  new  Social  Climate  Fund  and 
enhanced  Modernisation  and  Innovation  Funds.15  Moreover,  the  Zero  Pollution 
Action Plan, the Circular Economy Action Plan and the Biodiversity Strategy set out 
the importance for innovation to achieve their ambitious objectives and the proposals 
prepared in the context of these policies aim at boosting innovation. 

  Europe’s  Digital  Decade:  in  2020,  the  Commission  presented  its  approach  to  the 
digital  transformation16  and,  as  follow-up,  in  2021  it  set  common  digital  targets  for 
Europe,  proposing  a  governance  mechanism  and  new  instrument  to  create  multi-
country  projects  to  achieve  them  by  2030.17  Moreover,  it  also  addressed  the  role  of 
key digital technologies, including cutting-edge and disruptive ones, such as Artificial 
Intelligence  (AI).18  The  Commission  also  highlighted  the  role  of  the  Recovery  and 
Resilience  Facility  (RRF),  Digital  Europe  Programme  and  Connecting  Europe 
Facility Digital Programme for the digital transition and for financing investments in 
innovation  and  deployment  of  innovative  digital  solutions,  putting  forward  concrete 

12 See section 2.4.1 for definitions of start-ups and scale-ups. 
13  The  key  importance  of  innovation  has  been  well  illustrated  during  the  Covid-19  crisis.  The  economic  performance  of 
innovative  firms  in  the  EU  has  been  considerably  less  affected  by  the  pandemic  than  non-innovative  companies.  See  Di 
Minin, A., De Massis, A., Moncada Paterno` Castello, P., Marques Santos, A. and Haegeman, K. (2021), How innovative EU 
firms faced the COVID-19 downturn, European Commission, JRC126964. 
14 COM(2019) 640, The European Green Deal. 
15 COM(2021) 550, ‘Fit for 55’: delivering the EU’s 2030 Climate Target on the way to climate neutrality. 
16 COM(2020) 67, Shaping Europe’s digital future. 
17 COM(2021) 118, 2030 Digital Compass: the European way for the Digital Decade. 
18 COM(2018) 795, Coordinated Plan on Artificial Intelligence; COM(2021) 205, Fostering a European approach to Artificial 
Intelligence. 

4 

 
                                                 
proposals,  including  making  use  of  European  Digital  Innovation  Hubs  (EDIHs)  to 
support SMEs in their innovation activities. 

  Economic and industrial policy: in light of the effects of the COVID-19 pandemic, 
the Commission published an update of its industrial strategy one year after its initial 
publication  in  2020.19  Reiterating  the  “fundamentals  of  industry  –  innovation, 
competition and a strong and well-functioning single market,” it highlighted the role 
of  SMEs  as  important  vehicles  of  innovation,  the  effects  of  regulation  and 
competition rules on innovation, and the tool of innovation procurement. Moreover, it 
identified  inter  alia  an  innovation  toolkit  –  not  only  higher  R&D  investments  –  but 
also  the  pooling  of  public  and  private  resources  via  Important  Projects  of  Common 
European  Interest  (IPCEIs)  in  areas  where  market  actors  alone  cannot  deliver 
breakthrough innovation, the increasing use of innovation procurement, or the use of 
EDIHs. The EU has recognized the special role of SMEs, start-ups and scale-ups as 
particularly  prone  for  innovative  business  models  and  new  technologies.20  Key 
actions in support of SMEs include increasing the number of Digital Innovation Hubs, 
engaging with Member States to share and adapt best practices to accelerate growth 
of  high-tech  SMEs  and  start-ups,  and  establishing  an  SME  IPO  fund  supporting 
SMEs  through  and  beyond  the  listing  process.21  In  its  landmark  paper,  the  ESIR 
Expert  Group22  reflects  on  the  future  of  industrial  policy  in  Europe  by  highlighting 
research and innovation as drivers for a transition to a sustainable, human-centric and 
resilient European industry, moving the focus from shareholder to stakeholder value, 
with benefits for all concerned.23 

  Education:  the  EU  has  recognised  that  education  and  innovation  interact  in  many 
ways.  In  response,  policy  documents  have  focused  on  the  importance  of  education, 
training, lifelong learning and digital skills for economic growth and innovation, the 
positive  role  innovation  can  play  for  education,  the  modernisation  of  higher 
education,  and  the  way  that  innovation  and  technological  progress  reshape  society, 
the labour market and the future of work.24 

  Global affairs: seeing itself as a global leader, the EU presented its Global Approach 
to Research and Innovation in 2021.25 Noting that global competition was increasing, 
with  other  major  countries  spending  more  on  science  than  the  EU,  and  geopolitical 
tensions  rising,  it  pointed  to  the  fact  that  the  EU’s  prosperity  and  economic 
competitiveness are depending on its ability to autonomously source and provide its 
citizens with crucial technologies and services that are safe and secure, including in 
space  and  defence  sectors.  After  Russia’s  unjustified  and  unprovoked  aggression 

(2022),  Towards 

https://ec.europa.eu/info/research-and-innovation/strategy/support-policy-making/shaping-eu-research-and-innovation-

19 COM(2021) 350, Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery. 
20 COM(2016) 733, Europe’s next leaders: the Start-up and Scale-up Initiative. 
21 COM(2020) 103, An SME Strategy for a sustainable and digital Europe. 
22 
policy/esir_en 
23  ESIR 
https://ec.europa.eu/info/publications/industry-50-transformative-vision-europe_en 
24  COM(2020)  624,  Digital  education  action  plan  2021-2027:  Resetting  education  and  training  for  the  digital  age; 
COM(2020)  625,  Communication  on  achieving  the  European  Education  Area  by  2025;  COM(2020)  274,  European  Skills 
Agenda  for  sustainable  competitiveness,  social  fairness  and  resilience;  COM(2022)  16  final,  A  European  strategy  for 
universities. 
25 COM(2021) 252 final, Global Approach to Research and Innovation: Europe's strategy for international cooperation in a 
changing world. 

resilient  European 

industry.  More 

human-centric 

sustainable, 

and 

on 

a 

5 

 
                                                 
against Ukraine26, but in a similar vein, the EU in its Strategic Compass for Security 
and  Defence27  pointed  to  the  need  to  react  to  the  way  that  emerging  and  disruptive 
technologies  are  re-shaping  military  affairs  and  defence  markets.  It  emphasized  the 
need  to  “stimulate  investments  and  innovation  to  jointly  develop  the  necessary 
capabilities and technologies” by drawing on larger research and innovation  efforts, 
but  also  by  establishing  a  Defence  Innovation  Hub  within  the  European  Defence 
Agency  (EDA)  or  by  developing  an  EU  Defence  Innovation  Scheme  to  accelerate 
security  and  defence  innovation.  The  Strategic  Compass  also  highlighted  the 
additional efforts needed in reducing strategic dependencies and enhancing Europe’s 
technological sovereignty. 

1.1.3 

Towards a coherent and joined-up approach 

As the above overview has shown, innovation policy is a crucial policy area with significant 
EU initiatives and investments. This is complemented by the work on ERA aiming to build a 
true  European  single  market  for  research  and  innovation.  Innovation  is  also  crucial  to 
achieving  other  EU  policy  priorities,  first  and  foremost  the  green  and  digital  transition,  but 
also  supporting  other  sectoral  Commission  initiatives.  While  these  often  draw  on  Horizon 
Europe, they also propose their own instruments and investments, thereby contributing to the 
larger EU innovation policy in their own right. This raises, however, questions with regard to 
policy coherence and synergies: one goal of the new European Innovation Agenda is thus to 
bring together the various policies, investments and instruments in a coherent and joined-up 
approach in order to drive systemic change and deliver real impacts across the whole Union. 
To provide further evidence for this, the next section will take stock of the EU’s innovation 
performance in comparison with other major global innovators, across Member States as well 
as in terms of key outputs and economic results. 

1.2 

EU innovation performance 

1.2.1 

European innovation scoreboard 

EU’s innovation performance has been increasing over recent years. The latest edition of 
the  European  Innovation  Scoreboard  shows  that  this  performance  has  increased  by  12.5 
percentage points since 2014, particularly due to strong performance increases in broadband 
penetration, venture capital (VC) investments, and international scientific co-publications.  In 
terms  of  EU  performance  change  in  2021  relative  to  2014,  the  EU  performs  the  best  in  the 
dimension  of  digitalisation  with  a  performance  of  38%  above  the  EU  average  in  2014, 
followed  by  the  dimension  of  innovations  (+37%)  and  linkages  (+35%).  These  dimensions 
comprise  indicators  such  as  broadband  penetration,  share  of  SMEs  product  and  business 
process  innovations  and  share of innovative SMEs collaborating with  others.  In comparison 
with 2020, the EU improved the most in the innovators dimension from a score of less than 
110 to 137, due to recent positive trends related to shares of innovative SMEs. In individual 
indicators,  the  EU  experienced  the  largest  performance  improvement  in  venture  capital 
investments, which increased by 68% compared to the 2014 average. 

26 Channels of impact of the Russian invasion of Ukraine on EU R&I are identified in Ravet, J., Di Girolamo, V., Mitra, A., 
Peiffer-Smadja, O., Canton, E., Hobza, A. (2022), EU research and innovation and the invasion of Ukraine : main channels 
of impact, EU Publications Office. 
27 Council 7371/22, A Strategic Compass for Security and Defence - For a European Union that protects its citizens, values 
and interests and contributes to international peace and security. 

6 

 
                                                 
Figure 1. European Innovation Scoreboard – change in 2020 and 2021 compared to 2014 

Source: European Innovation Scoreboard 2021. 

However, in global  terms, the EU continues to lag  behind a number of key innovators 
such as Japan, the United States and South Korea, mainly due to a poorer performance as 
measured by patent applications and business expenditure in R&D. Between 2014 and 2021, 
the  EU  has  improved  its  relative  position  compared  to  six  of  other  global  players:  the 
performance  gap  with  Australia  and  Canada  has  become  smaller  and  the  performance  lead 
over Brazil, India, Russia and South Africa has increased. The EU has seen a worsening of its 
relative  position  towards  four  of  its  global  competitors:  the  performance  gap  with  Japan, 
South  Korea  and  the  United  States  has  increased.  The  EU  is  still  ahead  of  China  but  its 
performance lead has become smaller. 

Figure 2. European Innovation Scoreboard – Global Performance 

Source: European Innovation Scoreboard 2021. Note: coloured columns show performance in 2021 relative to that of the EU 
in  2014.  The  horizontal  hyphens  show  performance  in  2020  relative  to  that  of  the  EU  in  2014.  Grey  columns  show 
performance in 2014 relative to that of the EU in 2014. For all years, the same measurement methodology has been used. 
The dashed lines show the threshold values between the performance groups, where the threshold values of 70%, 100% and 
125% have been adjusted upward to reflect the performance increase of the EU between 2014 and 2021. 

7 

 
 
 
The distribution of EU countries across the ranking indicates an innovation gap between 
Northwest and Southeast Member States (see also Section 2.3 on ecosystems). Sweden is the 
EU  most  innovative  country,  followed  by  Finland,  Denmark  and  Belgium  (‘innovation 
leaders’). Romania, Bulgaria, Latvia, Poland, Slovakia, Hungary and Croatia show a weaker 
innovation performance (‘emerging innovators’).  

Figure 3. European Innovation Scoreboard 2021 

Source:  European  Innovation  Scoreboard  2021.  Note:  coloured  columns  show  countries’  performance  in  2021,  using  the 
most  recent  data  for 32 indicators,  relative  to  that of  the  EU  in 2014. The  horizontal  hyphens  show  performance  in 2020 
using  the  next  most  recent  data,  relative  to  that  of  the  EU  in  2014.  Grey  columns  show  countries’  performance  in  2014 
relative to that of the EU 2014. For all years, the same measurement methodology has been used. The dashed lines show the 
threshold values between the performance groups, where the threshold values of 70%, 100% and 125% have been adjusted 
upward to reflect the performance increase of the EU between 2014 and 2021. 

1.2.2 

Industrial R&D and the global tech race 

In  the  COVID-19  crisis  context,  the  latest  R&D  figures  from  the  Industrial  R&D 
Scoreboard28 show the resilience of industrial R&D investments as key for recovery and 
their potential for industrial transformation towards the green and digital economy. However, 
the Scoreboard also shows that the crisis further shaped the global tech-race in favour of US 
and China, for which the R&D values have grown, while the EU’s value has not. This is due 
to  increased  demand  for  ICT  and  health  solutions,  where  these  competitors  have  gained 
strength  in  the  past  decade,  together  with  pressure  on  the  EU  Automotive  stronghold  via 
mobility  restrictions  and  the  need  for  a  profound  transition  due  to  the  Green  policy  agenda 
(Figure 4). Global R&D growth was driven by the ICT services sector (15.5%), followed by 
the  health  and  ICT  producers  sectors  (12.8%  and  5.7%  respectively).  Most  other  sectors 
showed a decrease in R&D investment, particularly those hit hard by the crisis, i.e. aerospace 
&  defence  (-17.0%)  and  automotive  (-4.3%).  The  chemicals  sector  reduced  R&D  by  3.4%, 
continuing the negative trend observed in the past few years.  

28  The  Industrial  R&D  Investment  Scoreboard  monitors  private  R&I  competitiveness  based  on  timely  statistics  from 
companies’ latest published accounts. It comprises key indicators on the 2500 parent companies and more than 800 thousand 
subsidiaries.  These  companies,  based  in  39  countries,  each  invested  at  least  €36.5  million  in  R&D  for  a  total  of  €908.9 
billion.  The  2021  Scoreboard  total  R&D  is  equivalent  to  approximately  90%  of  the  world’s  business-funded  R&D.  See 
https://iri.jrc.ec.europa.eu/scoreboard/2021-eu-industrial-rd-investment-scoreboard. 

8 

 
 
 
                                                 
Figure 4. R&D investment growth 2019-2020 by sector and selected region/country. 

Source:  The  2021  EU  Industrial  R&D  Investment  Scoreboard,  European  Commission,  JRC/DG  RTD.  Note:    R&D  2020 
growth  rates have  been  computed  for  399  EU, 776  US  and  597 Chinese  companies  for  which data are  available  for  both 
years 2019 and 2020. Sectors ordered from left to right in terms of overall R&D investment in 2020. 

Comparing the 2016 and the 2021 Scoreboard values, the most important development 
in the global R&D ranking is the increased presence of high-tech companies. There are 
779  US-based,  401  EU-based  and  579  China-based  Scoreboard  firms.  While  the  EU 
maintains  a  higher  share  of  R&D  compared  to  China  (€184.1bn  vs  €141bn),  the  number  of 
China-based firms increased very significantly through the addition of 270 companies to the 
327 included in the 2016 Scoreboard. Overall decreases in the number of firms from the EU, 
the US and Japan are of similar magnitude, but their mix is least concerning for the US, which 
managed  to  increase  its  presence  in  two  of  the  key  global  sectors,  i.e.  health  industries  and 
ICT  services,  thanks  to  its  sustained  investment  in  software,  internet  and  computer  services 
technologies  as  well  as  in  pharmaceuticals  and  biotechnology.  The  EU  lost  both  R&D  and 
number of companies in all four key sectors, slightly in ICT and health, more in automotive. 
However,  it  increased  in  industrial  machinery  and  general  industrials,  which  are  two  sub-
sectors that encompass a number of medium-low and medium-high tech industries and some 
more or less knowledge intensive services – all these are included more generally in the group 
of “Industrials”.  

Scoreboard  R&D  is  highly  concentrated  in  four  major  sectors  accounting  for  77.4%  of 
global  R&D  in  the  Scoreboard:  ICT  producers  (22.9%),  Health  industries  (20.8%),  ICT 
services  (18.6%)  and  Automotive  (15.2%)  (Figure  5).  This  concentration  is  due  to  the 
structure  of  the  industry  in  each  country/region  which  evolve  on  a  rather  long-term  basis. 
Besides,  both  the  EU  and  US  have  experienced  a  slower  structural  transformation  than 
emerging  economies.29  This  means  there  cannot  be  “business  as  usual”  in  the  EU,  and  the 
transformation  of  our  industry  cannot  be  resolved  by  young  firms  alone.  Consequently, 
beyond  start-up  and  scale-up  financing,  integrating  high-tech  in  medium  tech  sectors  (in 
which  the  EU  has  an  excellent  basis)  is  a  specific  policy  challenge  in  industrial 
transformation.  It calls for special strategies (e.g. including skills, technology infrastructures 

29 Moncada-Paternò-Castello, P. (2022), ‘Top R&D investors, structural change and the R&D growth performance of young 
and old firms’, Eurasian Bus Rev 12, pp.1–33. 

9 

 
 
                                                 
etc.) for R&I as well as to manage the uptake and deployment. An example could e.g. be to 
strengthen digital capacities in order to  capitalise on the existing strengths and to  accelerate 
the benefits of digitisation (e.g. Internet of Things developments, AI with a purpose, using AI 
in R&D, innovation through high computing power, smart and flexible manufacturing). 

Figure 5. R&D intensities by sector group and selected region/country. 

Source: The 2021 EU Industrial R&D Investment Scoreboard, European Commission, JRC/DG RTD. 

The  Scoreboard  also  shows  that  the  EU  companies  are  among  the  global  leaders  on 
high-value  green  patents  and  green  patents  in  energy  intensive  industries.  However, 
specific efforts will be needed to pursue the requirements of the European Green Deal as well 
as to sustain leadership and remain competitive on global markets. As described above, China 
has  increased  its  competitive  position  especially  in  the  digital  sphere,  but  the  R&D-driven 
Made  In  China  2025  plan  also  focuses  on  the  green  economy,  e.g.  energy-  and  material-
efficient production, and the establishment of a circular economy.30 

1.2.3 

Innovation output 

According  to  the  Innovation  Output  Indicator,  Ireland,  Finland  and  Sweden  were  the 
top three EU countries in terms of innovation output in 2020. The indicator measures the 
extent  to  which  ideas  from  innovative  sectors  reach  the  market,  providing  better  jobs  and 
making Europe more competitive.31 While Ireland underperforms in the component of patent 
applications,  it  is  the  top  performer  when  it  comes  to  trade  in  knowledge-intensive  services 
and  innovativeness  of  high-growth  enterprises.  Finland  and  Sweden,  on  the  other  hand,  are 
very  strong  in  terms  of  patent  applications.  Conversely,  Romania,  Lithuania  and  Croatia 
reported  the  lowest  performance  in  2020.  Between  2011  and  2020,  the  innovation  output 
improved in 22 out of the 27 EU Member States, especially in Portugal, Ireland and Finland. 
Performance declined slightly in Germany, Denmark, Slovakia and France, and stagnated in 
Czechia.  The  strong  progress  of  Portugal  was  mainly  due  to  a  significant  increase  in 
employment  of  fast-growing  enterprises.  According  to  the  Innovation  Output  Indicator,  the 
EU is lagging behind the United States and, in particular, Japan. These results are mainly due 

30  See  Preziosi,  N.  et  al.  (2019),  China  –  Challenges  and  Prospects  from  an  Industrial  and  Innovation  Powerhouse,  EUR 
29737 EN, Publications Office, Luxembourg. 
31 The IOI is a  composite of four indicators: technological innovation as measured by patents; employment in knowledge-
intensive activities as a percentage of total employment; competitiveness of knowledge-intensive goods and services, based 
on  both  the  contribution  of  the  trade  balance  of  high-tech  and  medium-tech  products  to  the  total  trade  balance  and  the 
knowledge-intensive  services  as  a  share  of  the  total  services  exports;  Employment  in  fast-growing  firms  of  innovative 
sectors. 

10 

 
 
                                                 
to  the  EU  weak  performance  in  patent  applications,  employment  in  knowledge-intensive 
activities, and trade in knowledge-intensive services. 

Figure 6. Innovation Output Indicator, 2011 and 2020 

Source: European Commission, DG Joint Research Centre. Note: For the EU, two sets of values are available: 
values for worldwide comparison and values for European comparison. The values for worldwide comparison, 
which exclude trade within EU countries, are shown on the graph. The value for European comparison for 2020 
is 105.2. 

The  EU’s  share  in  the  patent  applications  worldwide  has  declined  to  roughly  20%  in 
2018,  compared  to  2000.  Around  80%  of  the  patent  applications  filed  under  PCT32  come 
from Japan, China, EU and the United States. However, the distribution of the shares among 
these  four  regions  has  changed  over  time.  While  the  EU  and  the  United  States  accounted, 
respectively, for 31% and 38% of world’s patent applications in 2000, their share declined to 
19%  and  22%  in  2018.  China  is  the  country  with  the  largest  increase  over  time,  especially 
after  2008,  overtaking  both  the  EU  and  Japan  in  2017.  If  the  trend  continues,  China  will 
overtake the United States in the coming years. The rise of China, Japan and South Korea in 
the patent applications, was at the expense of the United States and the EU in terms of world 
shares.  

32  The  Patent  Cooperation  Treaty  (PCT)  is  an  international  patent  law  treaty,  which  assists  applicants  in  seeking  patent 
protection  internationally  for  their  inventions.  By  filing  one  international patent  application under  the PCT,  applicants  can 
simultaneously seek protection for an invention in a large number of countries. 

11 

 
 
                                                 
Figure 7. World shares (%) of patent applications filed under PCT, 2000-2018 

Source: Science-Metrix based on PATSTAT (EPO) database. 

Like in the overall innovation activity, there exists a clear geographic divide in the EU in 
terms of patenting activity. In the EU, Germany accounted for more than 40% of the patent 
applications  filed under  the Patent Cooperation  Treaty (PCT) in  2018. France  came second, 
but  at  a  distance,  with  a  share  of  17%,  followed  by  Italy  (8%)  and  Sweden  (7%).  Patent 
applications  in  the EU are considerably more concentrated than scientific publications, with 
95% of the patent applications coming from only ten Member States. However,  Southern and 
Eastern  EU  Member  States  like  Portugal,  Italy,  Spain  and  Poland,  increased  their  share 
between  2000  and  2018,  while  the  shares  for  countries  like  Germany,  Netherlands,  Sweden 
and Finland decreased.  

The  EU  applies  for  comparably  more  patents  in  the  medium  and  low-tech  sectors,  in 
particular  the  automotive  and  machinery  sectors.  China  and  the  United  States  apply  for 
comparably more patents in high-tech, such as the pharmaceutical and other chemistry sectors 
(polymers,  materials  or  nano-technology)  and  knowledge-intensive  services,  like  the  IT 
sectors  (despite  the  fact  that  knowledge-intensive  services  represent  a  very  low  worldwide 
share in patents). Japan, on the other hand, appears to be strong mainly in the medium-tech 
sector. 

The  EU  is  the  top  worldwide  patent  applicant  in  the  fields  of  climate  &  environment 
(23%), energy (22%) and transport (28%). However, it has experienced significant losses 
in  terms  of  world  shares  in  these  fields  between  2008  and  2018.  The  biggest  decline  is  in 
transport, with minus 11 percentage points (p.p.), despite the increase in the absolute number 
of patent applications over the same period. The United States, while maintaining leadership 
in  the  fields  of  health  and  food  &  bioeconomy,  witnessed  an  even  stronger  decline  in  their 
shares  in  world  patents,  especially  in  security  (-15  p.p.),  health  (-14  p.p.)  and  energy  (-13 
p.p.). Conversely, China increased its world share in all fields. However, China only tops the 
rank in security, with an impressive increase of more than 28 p.p., from 3% in 2008 to 31% in 
2018. China’s performance also improved significantly in the energy sector, with an increase 
of more than 17 p.p. Japan, despite being weaker in scientific production (based on scientific 
publications), stands out strongly in technology output, with important shares in the societal 
challenges of health, energy and transport. 33 

The  EU  lags  behind  the  US  and  China  in  terms  of  patent  applications  in  digital 
technologies. The EU’s share in digital patents has remained stable since 2012, while the US 

33 Source: Science, Research and Innovation Performance of the EU 2022 based on Science-Metrix and PATSTAT database. 

12 

 
 
                                                 
share kept increasing over time, thereby widening the gap between the two economies (EIB, 
2022).  Although  the  EU  is  still  ahead  of  China,  Chinese  investments  in  new  digital 
technologies  have  significantly  accelerated  over  the  past  ten  years.  34  This  pattern  is  also 
confirmed  by  an  analysis  of  patent  data  delving  into  the  uptake  of  advanced  digital 
technologies  such  as  Artificial  Intelligence  (AI).  An  analysis  of  AI-enabled  innovations  in 
such critical economic sectors as health, mobility and manufacturing shows that the US and 
China vastly outperformed the EU in number of patents filed.35 For the AI-related patents in 
these sectors, China is the larger contributor, overtaking also  the US. Similarly, the EU lags 
behind the US in terms of investments in the development and diffusion of AI. In 2020, the 
US  invested  EUR  21.2  or  about  twice  as  much  as  the  EU  in  AI-related  R&D,  data  and 
equipment and intangible assets.36 

More  efforts  are  also  needed  to  bridge  research  with  innovation  and  marketable 
solutions.  The  comparably  low  performance  of  the  EU  in  patent  applications  and  share  of 
high-tech exports (Figure 8), stands in contrast with its large qualified workforce, strong level 
of collaboration between academia and business sector, and significant scientific production. 
This calls for addressing deficiencies by promoting a culture of knowledge valorisation in its 
R&I  system,  ensuring  that  the  knowledge-based  institutions  know  how  to  manage  their 
intellectual  capital,  and  by  improving  the  links  between  academia,  industry,  citizens  and 
policymakers.37  

Figure 8. Knowledge valorisation approach, latest available year (EU=1) 

Source: Science, Research and Innovation Performance of the EU 2022. Note: data for USA and China relative 
to EU, which is normalised to 1. 

34 EIB (2022), Investment Report 2021/2022: Recovery as a springboard for change. 
35 JRC (2020), AI Watch: AI Uptake in Health and Healthcare, JRC122675; JRC (2021), How can Europe become a global 
leader  in  AI  in  health?,  JRC123420;  JRC  (2021),  AI  Watch:  AI  Uptake  in  Smart  Mobility,  JRC126302;  JRC  (2022),  AI 
Watch: AI Uptake in Manufacturing, JRC129295. 
36 JRC (2022), AI Watch: Estimating AI investments in the European Union, JRC129174. 
37 Science, Research and Innovation Performance of the EU 2022. 

13 

 
 
                                                 
1.2.4 

Startups, scaleups and unicorns 

Venture  capital  backed  start-ups  and  scale-ups38  represent  a  key  driver  of  economic 
growth and job creation, playing a critical role in fostering innovation. Such start-ups and 
scale-ups39  foster  aggregate  investment  activities,  in  particular  in  intangible  assets.40  These 
companies  report on average significantly higher investment  levels  per employee than older 
firms. Furthermore, they are also catalysts for innovation and generate spill-over effects that 
benefit the society at large. These start-up and scale-up companies offer new products and/or 
services, new delivery modes, and also carry new ideas when it comes developing new ways 
of  generating  revenues  from  products  and  services  sold,  and  to  branding  and  advertisement 
strategies implemented on the market.41  In 2019, the share in  total  employer enterprise of a 
much broader category of start-ups (i.e., newly created firms)42 in EU ranged between about 
14%  (Belgium)  to  about  42%  (Sweden).  Compared  to  2012,  the  number  of  such  firms 
increased in several countries, notably in Belgium, Croatia, Estonia, Hungary, Malta, Poland, 
Portugal, Romania and Spain. Croatia and Poland are the Member States that experienced the 
largest  increase  over  the  period  considered,  with  the  share  of  start-ups  almost  doubling 
compared  to  2012.  On  the  contrary,  Latvia  experienced  a  significant  contraction,  reporting 
almost 50% less young enterprises than in 2012, followed by Denmark with -20%.  

Figure 9. Share of start-ups up to 5 years old in total employer enterprises between 2012 
and 2019, per Member State 

Source: Science, Research and Innovation Performance of the EU 2022 based on Eurostat [bd_9fh_sz_cl_r2]  

Note: (1) Data in 2012 not available for FR, DE, EL, IE, SK, SE, UK. (2)Data for CY is not available. 

Innovative  start-ups  play  a  pivotal  role  in  addressing  the  challenges  of  the  twin 
transition.  In  order  to  meet  its  policy  objectives,  the  EU  calls  for  an  acceleration  of  the 
development  and  diffusion  of  innovative  ideas  and  inventions,  thereby  supporting  EU 
enterprises  with  high-growth  potential.  The  EU  aims  at  creating  a  fertile  innovation 

38 Please note that diverging data and definitions (as well as a number of different methodologies) are typically adopted to 
define  start-up  and  scale-up  companies.  As  such,  it  is  extremely  challenging  to  provide  a  comprehensive  overview  of  the 
European  landscape,  and  the  information  reported  in  this  chapter  builds  upon  different  definitions  used  across  different 
studies and report. For more information on data necessary to monitor innovation activities, please refer to section 2.4.1. 
39 Defined as firms younger than 10 years old and with high growth potential. The definition excludes, for instance, young 
businesses that do not intend to grow beyond their solo founder or already reach a wide geographical market (EIB, 2019). 
40 EIB (2019), Investment Report 2019/2020. 
41 EIB (2019), Investment Report 2019/2020. 
42 Here defined as enterprises up to 5 years old. 

14 

 
 
 
                                                 
landscape,  for  firms  to  scale-up  and  grow.  The  EU  keeps  lagging  behind  its  main 
international  competitors  in  terms  of  start-up  ecosystems43,  with  North  America 
dominating  the  international  scene,  hosting  50%  of  Top  30  ecosystems  in  the  world.  Asia 
follows  with  27%,  after  having  outranked  Europe  between  2019  and  2021.44  Nevertheless, 
the EU performance is improving and, in 2020, the EU was in the lead in terms of emerging 
ecosystems45, accounting for 37% of global emerging start-up ecosystems, followed by North 
America and Asia, with a share of 30% and 19%, respectively. 

The number of EU scale-ups has also increased in recent years, but the gap with the US 
remains. There are three times more tech scale-ups in the United States than in Europe.46 
Despite the contraction experienced with the outbreak of the COVID-19 virus, European fast-
growing  companies  showed  a  good  degree  of  resilience  to  the  COVID-19  shock47:  after  a 
20% contraction in the level of scale-up investment, in 2021 the European scale-up landscape 
has been able to almost double the investment value reported in 2019.48  

European scale-ups49 are strongly concentrated in few countries, notably UK and France 
which account for about 50% of total scale-ups in Europe50. In 2021, UK remains the leading 
country  in  terms  of  scale-up  performance,  counting  around  33%  of  the  European  scale-up 
force. London maintains its record as Europe’s scale up capital, with 145 scale-up companies. 
Paris follows with 50 fast-growing firms, accounting for the 17% of total scale-ups in France. 
Berlin ranks third, with 25 scale-ups. 

EU  underperforms  as  compared  to  its  main  international  competitors  in  terms  of 
number  of  deep-tech51  start-ups  and  unicorns  firms.  In  2021,  the  US  reported  almost 
seven times more unicorns than Europe, while China outperformed the EU by a factor 
of more than two (Figure 10). By the end of 2021, there were 742 companies worldwide with 
unicorn status. Of those, more than 60% (470) are based in the United States, more than one 
fifth  in  China  (or  169),  and  about  9%  (69)  are  in  the  EU.  Furthermore,  EU  unicorns  are 
typically  older  than  US  and  Chinese  ones.  On  average,  it  takes  about  ten  years  for  an  EU 
unicorn to reach the $ 1 billion valuation, against the eight and five years reported by US and 
China52. One of the main reasons behind the gap between the EU and the US is the significant 
difference  in  the  functioning  of  capital  markets,  which  calls  for  the  creation  of  a  more 
efficient  and  diversified  capital  ecosystem  enabling  EU  firms  to  scale-up  in  the  EU. 

43  A  start-up  ecosystem  is  defined  as  a  cluster  of  start-ups  (and  related  entities)  which  pool  together  resources  and  reside 
within a 100-kilometer radius from a central point (Startup Genome, 2021). 
44 The study is based on 280 startup ecosystems worldwide (Startup Genome, 2021). 
45 Emerging ecosystems are defined as ecosystems at the early-stage of their growth (Startup Genome, 2021). 
46 Mind the Bridge (2019), Tech Scale ups EU. 
47  For  a  discussion  on  the  COVID-19  effects  on  high-growth  enterprises  in Europe,  see  also  Coad, A.,  Amaral-Garcia,  S., 
Bauer, P., Domnick, C., Harasztosi, P.,  Pál, R. and Teruel M. (2022),  High-Growth Enterprises in times of COVID-19: an 
overview, JRC Working Papers on Corporate R&D and Innovation No 01. Additionally, evidence shows that R&D investors 
may  be  more  likely  to  be  pessimistic  about  investment  plans  as  a  consequence  of  the  COVID  shock  (Coad,  A.,  Amaral-
Garcia,  S.,  Bauer,  P.,  Domnick,  C.,  Harasztosi,  P.,  Pál,  R.  and  Teruel  M.  (2022b),  Investment  expectations  by  vulnerable 
European firms in times of COVID: a difference-in-difference approach, EIB Working Papers, No. 2022/04, ISBN 978-92-
861-5235-1, European Investment Bank (EIB), Luxembourg, https://doi.org/10.2867/19683). 
48 European Scaleup Monitor (2021), European scaleups got knocked down, but are up again. 
49 Here defined as young fast-growing companies (10 years old or younger) that have received at least €1 million within the 
past 10 years (January 2011 - December 2020) (European Scaleup Monitor, 2021). 
50 European Scaleup Monitor (2021), European scaleups got knocked down, but are up again. 
51 According to BCG and Hello tomorrow (2021), deep technologies are defined as  novel technologies offering significant 
advances over those currently in use. 
52 Testa, G., Compano, R., Correia, A. and Rückert, E. (2022), In search of EU unicorns -What do we know about them, EUR 
30978 EN, Publications Office of the European Union, Luxembourg, 2022, ISBN 978-92-76-47058-8, doi:10.2760/843368, 
JRC127712. 

15 

 
                                                 
Furthermore,  US  funds  alone  are  estimated  to  provide  capital  to  around  75%  of  European 
growth companies, thereby making their relocation more likely.53   

Figure 10. Number of unicorns across world regions per headquarter, 2021 

Source: Science, Research and Innovation Performance of the EU 2022 based on CBInsights, updated up to Aug 
2021. Note: The figure reports the number of unicorns headquartered in the different geographical regions. 

2 

KEY AREAS FOR EU INNOVATION 

Improving  EU’s  innovation  performance  requires  exploring  the  underlying  drivers  of 
such performance. Longstanding issues related to innovation, despite partial improvements 
not yet sufficiently evenly spread in the EU, call for action with renewed vigour, such as: (i) 
shortcomings  in  access  to  finance  (in  particular  in  relation  to  the  above-mentioned  scale-up 
gap),  (ii)  innovation-averse  regulatory  framework,  (iii)  a  persistent  innovation  divide, 
accompanied  by  insufficiently  connected  innovation  ecosystems,  (iv)  the  need  to  improve 
innovation policy-making at EU and Member State level, and (v) difficulty in attracting and 
retaining talent. 

Figure 11. Five key areas for innovation 

53 Pitchbook data, October 2021. 

16 

 
 
 
 
                                                 
2.1 

Access to finance for deep tech scale-ups 

One  of  the  main  structural  barriers  faced  by  deep-tech  and  innovative  companies  is 
limited  access  to  finance.  First,  the  output  from  innovation  activities  has  public  good 
properties and is partly  non-rival and non-excludable, i.e. other economic actors can benefit 
without  paying  for  it.54  As  a  result,  the  risk  of  not  being  able  to  reap  the  full  return  on 
innovation  investments  may  discourage  investors  from  allocating  funds  to  R&D-intensive 
firms.  Second,  innovation  activities  typically  result  in  the  production  of  technological 
knowledge,  which  is  a  non-tangible  asset.  As  such,  it  cannot  be  easily  deployed  or  used  as 
collateral  to  obtain  financing.55  In  addition,  innovation  projects  are  typically  riskier  as  they 
can  also  lead  to  negative  outcomes56.  The  uncertainty  naturally  embedded  in  innovation 
activities typically leads to high-risk premia in financing costs or financial frictions that limit 
firms’  abilities  to  secure  financial  resources  from  external  investors57.  The  short-term 
orientation  of  many  financial  investors  constitutes  another  constraint  to  innovation 
investments. The declining trend in innovation investment observed in Western countries58 in 
the  last  decades  can  be  partially  attributed  to  the  increase  of  short-term  investment  in  the 
private  sector.59  “Patience”  in  innovation  investments  is  a  key  ingredient  as  innovative 
activities  typically  take  time  to  deploy  their  results  in  terms  of  both  market  products  and 
financial returns. 

2.1.1 

Limited EU private investment and venture capital 

Equity  investments  are  critical  for  innovative  start-ups  to  grow  and reinforce  a  firm’s 
development  path  at  different  stages.  Europe  is  amongst  the  fastest  growing  regions  in 
private  capital  investment60.  Between  2016  and  2020,  it  experienced  a  faster  growth  than 
China and the US61, albeit from a lower base. European startups also accounted for 33% of all 
capital invested globally in rounds of up to USD 5 million compared to 35% for the US62. In 
2021,  private  equity  (PE)  investments  in  EU  portfolio  companies  experienced  a  significant 
increase, after the mild contraction reported in 2020.  Investments  from PE funds located all 
over the world (including Europe) to portfolio companies based in the EU increased by about 
41%, from € 64.3 billion to € 90.8 billion63. 

Venture  capital  (VC)  is  a  type  of  private  equity  investment  focusing  on  start-up 
companies  with  high  growth  potential.64  VC  investment  positively  affects  the  growth  of 

54 Hahn, D., Minola, T., Vismara,  S.,De Stasio, V. (2019), ‘Financing Innovation: Challenges, Opportunities, and Trends’, 
Foundations and Trends® in Entrepreneurship, Vol. 15: No. 3-4, pp 328-367. http://dx.doi.org/10.1561/0300000085-1 

55 Hall, B. H. and J. Lerner (2010), The financing of R&D and innovation, In: Handbook of the Economics of Innovation. Ed. 
by B. H. Hall and N. Rosenberg. Amsterdam: Elsevier. 609–635 
56  Hahn,  D,  Minola,  T., Vismara  S.,  De  Stasio, V.  (2019),  ‘Financing  Innovation:  Challenges,  Opportunities,  and  Trends’, 
Foundations and Trends® in Entrepreneurshi, Vol. 15: No. 3-4, pp 328-367. http://dx.doi.org/10.1561/0300000085-1 

57 Hall, B. H., P. Moncada-Paternò-Castello, S. Montresor, Vezzani, A. (2016), ‘Financing constraints, R&D investments and 
innovative  performances:  New  empirical  evidence  at  the  firm  level  for  Europe’,  Economics  of  Innovation  and  New 
Technology, 25(3): 183–196 
58 US and European countries. 
59 Mazzucato M. (2016), ‘Innovation, the State and Patient Capital’,  The Political Qaurterly, https://doi.org/10.1111/1467-
923X.12235 
60 Data from Invest Europe, 2022. 
61 A Compound Annual Growth Rate (CAGR) of 49%, against the 34% for China and 28% for the US. 
62 The State of Tech in Europe 2021. 
63 Data from Invest Europe, 2022 

64 Flachenecker, F., Gavigan, J. P. Goenaga Beldarrain, X., Pasi, G., Preziosi, N., Stamenov, B. and Testa, G. (2020),  High 
Growth  Enterprises:  demographics,  finance  and  policy  measures,  EUR  30077  EN,  Publications  Office  of  the  European 
Union, Luxembourg, 2020, ISBN 978-92-76-10615-9, doi:10.2760/34219, JRC119788 

17 

 
                                                 
target companies, in terms of both total assets and number of employees.  65 In addition, VC 
support  is  not  limited  to  the  provision  of  financial  resources,  but  may  also  include 
management advice, technical assistance, networking and expertise on supply, production and 
sales/marketing.66   

Private equity and venture capital can provide a significant contribution to the financing 
of the green transition. Technological innovation to decarbonise the EU’s energy system is 
considered  a  key  enabler  of  the  net-zero  targets.67    Equity  finance  to  European  innovative 
firms in the field of environmental technologies has already increased in the recent years, and 
continued  to  grow  steadily  during  the  COVID-19  period.68  Recent  research  documents  the 
attractiveness  of  green  patenting  for  venture  capital  investment  over  the  medium  term  in 
Europe, which is suggestive of a strong potential for facilitating the adoption and diffusion of 
environmental technologies.69 

Venture capital in the EU is mainly concentrated in a few EU Member States that are 
either ‘innovation leaders’ or ‘strong innovators’ as classified in the European Innovation 
Scoreboard.  VC  investors  are  often  regional  actors70  or  appear  to  focus  only  on  some 
European  regions  and  countries,  thereby  limiting  the  capacity  of  raising  capital  from  across 
the entire Union. Most of the VC investments are concentrated in a few EU countries, such as 
Germany  and  France  (approximately  €  3.8  billion  and  €  3  billion,  respectively),  which 
altogether received about 46% of VC financing in 2021. The Netherlands and Spain rank third 
and fourth in terms of absolute amount of VC investments received, with about € 1.8 billion 
and  €  1.3  billion,  respectively.  The  rest  of  EU  countries  received  a  significantly  lower 
proportion of VC financing, pooling together about € 4.1 billion, (approximately 27% of the 
overall  VC  resources  directed  to  EU  companies)71.  When  considering  countries’  economic 
size, VC investments represent only a tiny percentage (<0.5%) of EU Member States’ GDP.72 

VC  investments  are  mainly  allocated  at  the  domestic  level  (i.e.  the  investor(s)  and  the 
target  firm(s)  are  based  in  the  same  country),  with  just  a  fifth  of  all  transactions  involving 
investors that are all foreign with respect to the target firm, suggesting that the geographical 
proximity  between  venture  capitalists  and  VC-backed  firms  matters.73  Nevertheless,  deals 
with multiple investors based in different countries are on an upward trend worldwide (50% 
of total investments). When considering the EU Member States, the level of VC investments 
coming  from  foreign  investors  is  higher  than  that  reported  in  the  United  States.  However, 

65  Bellucci,  A.,  Gucciardi,  G.  and Nepelski,  D.  (2021),  Venture  Capital  in  Europe.  Evidence-based insights about  Venture 
Capitalists and venture capital-backed firms, JRC Working Paper Series, JRC122885. 
66 Testa, G., Compano, R., Correia, A. and Rückert, E. (2022), In search of EU unicorns -What do we know about them, EUR 
30978 EN, Publications Office of the European Union, Luxembourg, 2022, ISBN 978-92-76-47058-8, doi:10.2760/843368, 
JRC127712. 
67  European  Commission  (2020),  Impact  Assessment  accompanying  the  document.  Stepping  up  Europe’s  2030  climate 
ambition: Investing in a climate-neutral future for the benefit of our people. 
68 Kraemer-Eis, H., Botsari, A., Gvetadze, S., Lang, F., and W. Torfs (2021), The importance of Private Equity and Venture 
Capital 
258 
https://www.suerf.org/docx/f_35ecd9a2456d24cc121af5cf1795c4f6_37513_suerf.pdf 
69 Bellucci, A., Fatica, S., Georgakaki, A., Gucciardi, G., Letout, S. and Pasimeni, F. (2021), Venture Capital Financing and 
Green Patenting, European Commission, JRC Working Paper in Economics and Finance, No. 11/2021, Ispra, JRC127059. 
70  Kraemer-Eis,  H.,  Signore,  S.,  and  Prencipe  D.  (2016),  The  European  venture  capital  landscape:  an  EIF  perspective. 
Volume I: The impact of EIF on the VC ecosystem, EIF Working Paper 2016/34, EIF Research & Market Analysis. 
71 Data from Invest Europe, 2022. 

for  Greentech 

Policy  Note, 

in  Europe, 

Issue  No 

companies 

financing 

SUERF 

72  Amaral-Garcia,  S.,  Compano,  R.,  Domnick,  C.,  Fako,  P.,  Gavigan  J  and  Testa,  G.  (2022),    High  Growth  Enterprises 
Demographics  & Finance with a focus on venture capital: Factsheet  - EU, European Commission, Joint Research Centre, 
Sevilla, Spain,  JRC128693. 
73  Bellucci,  A.,  Gucciardi,  G.  and Nepelski,  D.  (2021),  Venture  Capital  in  Europe.  Evidence-based insights about  Venture 
Capitalists and venture capital-backed firms, JRC Working Paper Series, JRC122885. 

18 

 
                                                 
40% of EU investments keep occurring domestically, which is a sign of the integration of the 
EU market. 74 

Overall, VC investments in EU companies increased since 2013 onwards.   In 2021,  VC 
investments  almost  doubled  as  compared  to  2020  and  reached  about  €  15.2  billion. 
Differences are observed across different development stages. VC capital financing targeting 
firms at the seed stage75 slightly increased after having remained more or less stable between 
2017  and  2020.  Financing  allocated  to  later-stage76  venture  increased  considerably,  raising 
from € 2.9 to € 9.2 billion between 2019 and 2021. Investments in start-up stage also recorded 
a positive performance, increasing from € 4 billion to € 5 billion over the same period (Figure 
12).77 

Figure 12. VC investment in EU portfolio companies by development stage, 2007-2020  

Source:  Science,  Research  and  Innovation  Performance  of  the  EU  2022  based  on  Invest  Europe,  2021.  Note: 
Data  are  measured  following  the  market  statistics  approach,  an  aggregation  of  the  figures  according  to  the 
country  in  which  the  investee  company  is  based,  regardless  of  the  location  of  the  private  equity  fund.  At  the 
European  level,  this  relates  to  investments  in  European  companies  regardless  of  the  location  of  the  private 
equity firm.  

In the United States, almost seven times more venture capital funding is raised than in 
the  EU.  There  is  little  to  suggest  that  this  gap  will  reduce  in  the  near  future.  Even  though 
funds  raised  in  the  EU  have  increased  since  2013,  reaching  values  above  pre-crisis  levels 
(rising from € 2.3 billion in 2013 to € 10.2 billion in 2020), venture funds raised in the United 
States have also risen from € 15.8 billion in 2013 to about € 70 billion in 2020 (Figure 13). 
The financing  gap between the US  and the EU is  particularly striking  at  the scale-up stage, 
with US companies receiving on average significantly larger funds than EU ones.78  

74  Bellucci,  A.,  Gucciardi,  G.  and Nepelski,  D.  (2021),  Venture  Capital  in  Europe.  Evidence-based insights about  Venture 
Capitalists and venture capital-backed firms, JRC Working Paper Series, JRC122885. 
75 Funding provided before the investee company has started mass production/distribution with the aim to complete research, 
product definition or product  design,  also  including  market  tests  and  creating prototypes.  This  funding  will  not be  used  to 
start mass production/distribution. 
76  Financing  provided  for  an  operating  company,  which  may  or  may  not  be  profitable.  Late  stage  venture  tends  to  be 
financing into companies already backed by VCs. Typically in C or D rounds. 
77 Data from Invest Europe, 2022 
78 Duruflé, G., Hellmann, T., Wilson, K. (2017), From Start-up to Scale-up: Examining Public Policies for the Financing of 
High-Growth Ventures, Bruegel, Issue 04, 201. 

19 

 
 
 
                                                 
Figure 13. Venture Funds raised in Europe vs US, 2007-2020 

Source: Science, Research and Innovation Performance of the EU 2022 based on Invest Europe, 2021. 

There exist a significant gap in late stage financing between the EU and US. In 2020, the 
number of funds above $ 100 million is US was significantly higher than that reported in the 
EU.  The  US-EU  gap  is  particularly  striking  for  funds  of  larger  size,  namely  above  $  250 
million, for which the US outperform the UE by a factor of more than five (Figure 14). This 
signals  that  despite  the  increase  in  late-stage  financing  experienced  by  the  EU  in  the  last 
years, a persistent gap still exists as compared to US. 

Figure 14. Number of venture capital funds raised by fund size (in USD million) in the 
EU and US in 2020 

Source:  Science,  Research  and  Innovation  Performance  of  the  EU  2022  based  on  NVCA/Pitchbook  as  of 
31/03/2021. 

There  also  exists  an  investment  gap  in  unicorns  companies  between  the  EU  and  its 
international  competitors.  US  reports  the  highest  amount  of  investments  in  unicorns  over 
the period 2008-2021HY, with  an average funding per unicorn of  € 138 million.  China and 
EU show the same performance, with an average funding reported of € 125 million over the 
same period.79 Furthermore, European unicorns are mostly foreign financed. Between the 

79 Testa, G., Compano, R., Correia, A. and Rückert, E. (2022), In search of EU unicorns -What do we know about them, EUR 
30978 EN, Publications Office of the European Union, Luxembourg, 2022, ISBN 978-92-76-47058-8, doi:10.2760/843368, 
JRC127712. 

20 

 
 
 
                                                 
period 2008-2021HY, three of the top 10 venture capital firms investing in European unicorns 
were located in US.80  

Exit  strategies  represent  another  critical  step  in  scale-up  investments.  Companies  have 
three financing possibilities to scale-up: they can decide to rely on internal funds, to go public 
or  to  be  fully  or  partially  acquired.81  Initial  Public  Offerings  (IPOs)  represent  the  most 
common exit strategies available to private equity investors. Nevertheless, EU IPOs play a 
minor role in the financing of scale-ups as compared to the US.  In the last two decades, 
the amount of divestment  in  the US  was  significantly higher than in  the EU (Figure 15).  In 
2020,  only  5%  of  the  total  divestment  amount  took  place  through  IPOs  in  the  EU,  against 
30% in the US.  

Figure 15. Share of IPOs in the total divestment amount (%)  

Source: Science, Research and Innovation Performance of the EU 2022 based on Ambrosio et al (2021). 

Tackling the scale-up financing gap remains a top priority in the EU.  Ensuring that EU 
companies get access to the necessary amount of financing resources to scale up is critical to 
the achievement of several EU’s policy objectives. Tackling the EU scale-up gap would help 
the  EU  to  secure  its  technological  sovereignty  and  strategic  autonomy.82  The  innovation 
landscape  is  constantly  changing,  and  European  firms  need  funds  to  remain  competitive  on 
the global market. Additionally, leading companies in the emerging technological sectors are 
likely to play a key role in determining future industry standards. 

2.1.2 

Tech funding in the (post-)COVID-19 pandemic period 

Between  2020  and  2021,  the  EU  funding  environment  has  improved.  Deep-tech 
investments world-wide increased significantly over the period 2016-2020. In 2020, the level 
of global investments in deep-tech stood at over $ 60 billion (Figure 16). Private investment 
in deep-tech from corporate investors is also  on the rise.  Between 2016 and 2020, deep-
tech  private  investments  coming  from  corporate  investors  increased  from  $  5.1  billion  to  $ 

80 Testa, G., Compano, R., Correia, A. and Rückert, E. (2022), In search of EU unicorns -What do we know about them, EUR 
30978 EN, Publications Office of the European Union, Luxembourg, 2022, ISBN 978-92-76-47058-8, doi:10.2760/843368, 
JRC127712. 
81  Ambrosio,  F.,  Brasili,  A.,  Niakaros,  K.  (2021),  European  scale-up  gap  :  too  few  good  companies  or  too  few  good 
investors?, 
Innovation, 
Directorate-General 
European 
https://data.europa.eu/doi/10.2777/886042. 
82  Quas,  A.,  Mason,  C.,  Compano,  R.,  Gavigan,  J.  and  Testa,  G.  (2021),  Tackling  the  Scale-up  Gap,  EUR  30948  EN, 
Publications Office of the European Union, Luxembourg, ISBN 978-92-76-46712-0, doi:10.2760/982079, JRC127232. 

Commission, 

Research 

and 

for 

21 

 
 
                                                 
18.3  billion.  Over  the  period  2015-2018,  US  and  China  accounted  for  over  80%  of  global 
private  financing  in  deep-tech  companies.83  Nevertheless,  between  2016  and  2020,  private 
investment  in  Europe  has  experienced  faster  growth  than  China  and  US,  reporting  a 
compound annual growth rate of 49%, against the 34% and 28%, respectively.84 

Figure 16. Deep-tech investments worldwide, 2016-2020 (USD billion) 

Source:  Science,  Research  and  Innovation  Performance  of  the  EU  2022  based  on  BCG  and  Hello  Tomorrow 
(2021). Note: investments include private investments, minority stakes, initial public offerings and M&A. 

2021 has been a positive year of the European tech landscape. The EU has gained ground 
in  reducing  its  scale-up  financing  gap  to  the  US,  and  the  EU  VC  market  has  survived  the 
COVID-19  pandemic  without  major  disruptions,  showing  a  significant  degree  of  resilience. 
The  set  of  public  support  measures  taken  in  reaction  to  the  pandemic  played  a  key  role  in 
maintaining  such  a  good  performance,  preventing  the  EU  VC  industry  from  experiencing 
serious  damages.85  Investment  growth  in  2021  was  largely  driven  by  rounds  greater  than  $ 
250  million,  which  represent  40%  of  the  total  capital  invested  in  Europe.86  Smaller  rounds 
(below $ 5 million) also showed an increased compared to pre-pandemic levels. Nevertheless, 
keep accounting for a significantly smaller share (about 5%) of overall funding.87  

in  EU’s 

largest  markets  (notably,  France  and  Germany), 

Additionally,  international  investors  are  becoming  progressively  more  involved  in 
European tech fundraising activities. Although domestic funding remains the predominant 
the 
source  of  finance 
internationalisation  of  European  tech  companies  has  been  increasing  in  recent  years.88  In 
2021,  the  participation  of  US  and  Asian  investors  to  European  tech  financing  has  increased 
considerably, especially in bigger rounds of fundraising. Between 2020 and 2021 the share of 
rounds above $ 250 million raised in Europe involving either US or Asian investors increased 
from  73%  to  95%.89  The  increasing  presence  of  foreign  investors  has  important 
implications for the EU VC market. VC foreign activities tend to increase the likelihood for 
foreign  VC-backed  companies  to  being  acquired  by  a  foreign  firm  or  to  exit  in  a  foreign 

83 European Commission (2020), Science, research and innovation performance of the EU, 2020: a fair, green and digital 
Europe, Publications Office. 
84 Boston Consulting Group (BCG) and Hello tomorrow (2021), The Deep Tech Investment Paradox: a call to redesign the 
investor model. 
85  Kraemer-Eis,  H.,  Botsari,  A.,  Gvetadze,  S.,  Lang,  F.,  Torfs,  W.  (2021),  The  European Small Business  Finance  Outlook 
2021, EIF Working Paper 2021/75, EIF Research & Market Analysis. 
86 Atomico (2021), State of European Tech 2021. 
87 Atomico (2021), State of European Tech 2021. 
88 Kraemer-Eis, H., Botsari, A., Gvetadze, S., Lang, F. and Torfs, W. (2021), The European Small Business Finance Outlook 
2021, EIF Working Paper 2021/75, EIF Research & Market Analysis. 
89 Atomico (2021), State of European Tech 2021. 

22 

 
 
                                                 
market.90  For  instance,  over  1  in  3  European  companies  founded  after  2015  choose  the  US 
over Europe to  list.91 Furthermore, the share of public EU tech  companies  valued over $1B 
that  listed  in  US  exchanges  increased  considerably  overtime.  For  companies  founded  after 
2015, the share is seven times bigger that that reported for companies funded before 2000.92 

Although  still  lagging  significantly  behind  the  USA,  the  European  scale-up  landscape 
shows  considerable  potential  and  proved  to  be  able  to  quickly  react  to  the  challenges 
posed  by  the  COVID-19  pandemic.  Innovative  enterprises  showed  better  adaptation 
capacity  to  the  shock,  confirming  the  role  of  innovation  as  key  ingredient  for  economic 
resilience.  Furthermore,  since  November  2021,  the  number  of  European  unicorns  has 
increased  by  more  than  40%,  asserting  that  the  role  of  Europe  as  global  tech  player  is 
increasing. The improved EU performance in terms of fast-growing companies is of key 
relevance in the aftermaths of the COVID-19 pandemic. High-growth firms have not only 
the  potential  to  speed-up  the  recovery,  but  are  also  essential  to  progress  in  the  green  and 
digital  transitions.  As  such,  it  is  of  paramount  importance  to  seize  the  positive  momentum, 
and continue strengthening the EU innovation landscape by improving companies’ financing 
conditions and make them more attractive to private investors. 

2.1.3 

Funds  that  could  be  mobilised  through  the  action  on  later  stage  venture  capital 
financing  

Pension  funds  and  insurance  companies  represent  an  important  player  in  the  EU  VC 
landscape, although their involvement in European VC remain still highly underdeveloped93 
as compared to US, where pension funds contribute to around 20% of the money flowing to 
venture capital funds.94 Such a difference reflects the higher reliance of retirement income on 
private  savings  in  the  US,  leading  to  assets  managed  by  pension  funds  considerably  higher 
than  in  the  EU.  In  2020,  US  pension  funds  accounted  for  about  65%  of  the  $  35  trillion  of 
total  assets  managed  by  pension  funds  at  global  level95.  On  the  contrary,  EU  pension  funds 
and  insurance  companies  have  respectively  $  3  trillion96  and  $  10  trillion97  assets  under 
management (AUM), very unequally distributed across EU countries.  In  2021 capital  raised 
from  pension  funds  and  insurance  companies  accounted  only  for  about  7.9%  of  the  total 
venture  capital  funds  raised  in  the  EU98.  On  the  contrary,  VC  raised  from  government 
agencies in the EU increased significantly between 2019 and 2020. In 2020, capital raised by 
governments accounted for about 31% of total VC funding in the EU.99 In 2021, VC capital 
raised by government agencies still accounted for the largest share of total VC funds raised in 
the EU.100 

One  of  EU’s  ambition  is  to  convince  these  institutional  investors  to  adopt  a  portfolio 
allocation  more  similar  to  the  one  of  their  US  peers.  Private  equity,  which  includes  VC, 
represents a small portion of European pension funds and insurance companies’ investments. 
In  the  EU  in  2020  about  55%  of  pension  funds’  AUM  are  invested  in  bonds  and  20%  in 

90 Braun, R., Weik, S., & Achleitner, A. K. (2019), Follow the money: how venture capital facilitates emigration of firms and 
entrepreneurs in Europe, Available at SSRN 3415370. 
91 Atomico (2021), State of European Tech 2021. 
92 Atomico (2021), State of European Tech 2021. 
93 Helmut Kraemer-Eis, et.al.(2021), The European Small Business Finance Outlook, EIF working Paper 2021/75. 
94 Dow Jones Private Equity Analyst Sources of Capital survey. 
95 OECD, global pension statistics, 2022. 
96 OECD, global pension statistics, 2022 
97 Insurance Europe, data, 2021. 
98 Data from Invest Europe, 2022. 
99 Data from Invest Europe, 2021. 
100 Data from Invest Europe, 2022. 

23 

 
                                                 
public equity.101 In 2020, pension funds yearly investments in European ventures amounted to 
only about € 700 million, corresponding to less than 0.018% of their total assets in the same 
year.102 If pension funds were to  channel 50% of their private equity allocations per  year to 
VC, about € 10 billion a year could be raised103. In comparison to US figures, a target of 1% 
of European pension funds’ AUM to be allocated to VC by 2025 could mean mobilizing € 30 
billion  over  three  years,  which  would  more  or  less  double  the  EU  VC market  (in  2020,  the 
total EU28 market was EUR 24 billion). Similarly, EU insurance companies have 9% of their 
AUM invested in equity, almost exclusively public equity. Private equity is a very small part 
of  their  investment  portfolios  (9%  or  USD  30  billion  in  the  US)104.  Given  their  more  risk-
averse  nature  compared  to  pension  funds,  a  proportionate  target  of  0.15%  of  European 
insurance companies’ AUM could be set to be allocated to VC by 2025, arriving at roughly € 
15  billion  mobilized  over  three  years.  Summing  up  the  funds  that  could  be  mobilized  by 
European pension funds and insurance companies from 2023 to 2025, a total of € 45 billion 
could be achieved.  

Costs that could be saved through the action on listing  

European Commission’s internal  assessments  indicate that  reductions in  the complexity and 
length of prospectuses could cut costs by a quarter or more and amendments to the rules on 
inside  information  could  lead  to  about  3%  lower  costs  per  annum  from  staying  listed. 
Aggregate issuance costs are estimated to decline by € 67 million and ongoing costs by € 100 
million. 

2.1.4 

A fragmented financial market 

Despite  these  positive  recent  trends,  EU’s  capital  markets  remain  considerably 
fragmented,  constraining  EU  companies  to  mainly  rely  on  domestic  markets  to  meet 
their financial needs. This results into a heterogeneous degree of access to finance within the 
Union territory, as well as in different financing costs between EU countries. The EU capacity 
to  attract  cross-border/foreign  investors  is  quite  heterogeneous  across  Member  States. 
Germany and France are the two EU countries with the highest capacity to attract investors in 
innovative firms, with a venture capital attractiveness score of 87.3105 and 83.6, respectively 
(Figure  17).  The  Netherlands,  Sweden  and  Denmark  also  perform  quite  well  in  the  EU 
ranking  with  a  score  well  above  the  EU  average  of  77.3.  Southern  and  Eastern  European 
countries  are  less  good  in  attracting  venture  capital  investors,  with  scores  below  the  EU 
average.  Croatia,  Latvia,  Lithuania  and  Slovakia  are  among  the  Member  States  with  the 
lowest performance, with a score ranging between 53.1 and 47.5.  

101 Estimation based on OECD’s country data. 
102 Atomico (2021), State of European Tech 2021. 
103 Nederlandse Vereniging voor Participatiemaatchappijen (2021), The untapped potential. 
104 Centre for capital markets (2019), The role of insurers in the US economy. 
105  The  index  is  rescaled  to  100  for  the  most  attractive  country  for  VC  and  PE  allocations  (here  the  USA),  and  it  is  built 
considering six key drivers of VC/PE attractiveness (namely, economic Activity, depth of Capital Market, taxation, investor 
protection and corporate governance, human and social environment, and entrepreneurial culture and deal opportunities. For 
more  details,  please  refer  to  Alexander  Groh,  Heinrich  Liechtenstein,  Karsten  Lieser  and  Markus  Biesinger  (2021),  The 
Venture  Capital  and  Private  Equity  Country  Attractiveness  Index  2021,  The  Venture  Capital  &  Private  Equity  Country 
Attractiveness Index (iese.edu). 

24 

 
                                                 
Figure  17.  The  venture  capital  and  private  equity  country  attractiveness  index  per 
Member State, 2021  

Source:  Science,  Research  and  Innovation  Performance  of  the  EU  2022  based  on  the  Venture  Capital  and 
Private Equity Country Attractiveness Index 2021.  

Furthermore, bank loans remain the predominant financing instrument for companies 
in the EU, while equity capital and market based debt (corporate bonds)106 still play a 
minor role compared to other international economies. Traditional bank products, such as 
loans,  credit  lines  and  bank  overdrafts  continue  to  represent  the  most  relevant  sources  of 
external  finance  for  European  enterprises.  Alternative  external  resources  such  as  equity 
investment keep playing a minor role, although remaining critical to help firms facing specific 
financial needs and challenges, notably riskier and long duration innovation processes.107 On 
average, EU firms  make more use of debt  finance to  finance their innovation  activities (9% 
against 4% using equity finance).108 Since innovative firms are typically active in intangible-
intensive sectors, access to debt financing is challenging, as  intangible assets are difficult to 
be pledged as collateral for bank lending109 

Internal  funding  continues  to  be  the  primary  source  of  innovation  for  all  European 
businesses.  Given  the  crucial  role  of  intangible  assets  in  knowledge-based  economies, 

106  European  Commission  (2017),  Analysis  of  European  Corporate  Bonds  Market.  Analytical  report  supporting  the  main 
report from the Commission Expert Group on Corporate Bonds. 
107 Mazzucato M. (2016), ‘Innovation, the State and Patient Capital’,  The Political Quarterly, https://doi.org/10.1111/1467-
923X.12235 
108 Community Innovation Survey (CIS). 
109  Demmou,  L.  and  G.  Franco  (2021),  Mind  the  financing  gap:  Enhancing  the  contribution  of  intangible  assets  to 
productivity,  OECD  Economics  Department  Working 
Publishing,  Paris, 
https://doi.org/10.1787/7aefd0d9-en 

1681,  OECD 

Papers,  No. 

25 

 
 
 
                                                 
improving  access  to  finance  is  essential  to  fully  tap  their  growth  potential.  Intangible-
intensive  sectors  have  strong  productivity  potential,  but  typically  face  more  financial 
constraints than the rest of the economy. As such, they would be the segments benefitting the 
most by further financial development110, e.g. collateralisation. Less financial frictions would 
improve  firms’  ability  to  finance  their  innovation  activities,  thereby  advancing  their 
productivity  performance.  External  financing,  plays  a  critical  role  in  enhancing 
investment opportunities, but its usage remains limited to larger innovators with collateral, 
and  innovative  in-house  competencies.  Enhancing  access  to  equity,  especially  for  small 
innovative firms, is thus key to creating growth opportunities. 

Levelling the playing field for debt versus equity financing and the lack of appropriate 
tax  incentive  constitute  another  important  constraint  to  innovation  financing.  In  many 
EU corporate tax systems, interest payments on debt financing are tax deductible, while the 
costs  related  to  equity  financing  are  not.  Such  asymmetric  tax  treatment  induces  a  bias  in 
investment  decisions,  making  debt  financing  more  appealing  despite  the  potential  negative 
effects  related  to  increasing  companies’  debt  levels,  thereby  leading  to  higher  incidence  of 
insolvency and negative spill-over effects for the EU as a whole. In 2019, total indebtedness 
of non-financial corporations amounted to almost € 14 trillion in 2019 (99.8% of GDP in the 
EU),  and  the  debt  to  equity  ratio  was  53.3%.111  The  COVID-19  pandemic  exacerbated 
corporate  financial  vulnerabilities,  causing  considerable  revenue  losses  and  further  debt 
accumulation112  

The tax induced debt-equity bias constitutes an important constraint to the creation of a 
strong equity market in the EU. This penalises innovative companies (especially start-ups 
and SMEs) which typically face higher constraints in raising the necessary resources to meet 
their  financing  needs.  Addressing  the  higher  cost  of  equity  financing  is  of  key  relevance  to 
boost  EU  innovation  performance,  calling  for  continuous  efforts  to  minimise  unintended 
distortions in companies’ investment decisions and facilitate innovative companies’ access to 
financing resources. 

Furthermore,  persisting  differences  in  national  tax  system  can  create  unnecessary 
burdens  for  EU  companies.  Member  States  have  the  possibility  to  introduce  measures  at 
national  level  to  mitigate  the  tax  induced  debt-equity  bias.  Country  specific  rules  risk  to 
further enhance the Single Market fragmentation, as multinational enterprises can afford tax-
planning and relocate business centres, or companies may be tempted to base their investment 
decisions  on  the  availability  of  debt-equity  bias  mitigating  measures,  and  to  create 
unnecessary  compliance  costs 
thereby  discouraging  cross-border 
investments.113  

for  businesses, 

The  underrepresentation  of  women  in  the  European  VC  landscape  represents  another 
major  constraint  to  the  development  of  a  strong  innovation  ecosystem.  The  gender 
financing  gap  in  Europe  remains  persistent.  In  2020,  only  1.7 %  of  the  capital  raised  in 
European  VC  markets  was  captured  by  tech  companies  with  only  female  founders.114  The 
difference between male-led companies and companies with mixed/female founders remains 
significant both in terms of capital and number of deals. In 2021, male-only firms accounted 

110  Demmou,  L.  and  G.  Franco  (2021),  Mind  the  financing  gap:  Enhancing  the  contribution  of  intangible  assets  to 
productivity,  OECD  Economics  Department  Working 
Publishing,  Paris, 
https://doi.org/10.1787/7aefd0d9-en 
111 DEBRA Inception impact assessment - Ares(2021)3879996. 
112 COM(2020) 590 final, A Capital Markets Union for people and businesses-new action plan. 
113 COM(2021) 251 final, Business Taxation for the 21st Century. 
114 Atomico (2021), State of European Tech 2021. 

1681,  OECD 

Papers,  No. 

26 

 
                                                 
for respectively about 90 % and 84 % of capital and deals concluded, against 1.1 % and 5.4 % 
reported  for  women-led  companies,  respectively.115  The  gap  also  remains  huge  when 
considering  companies  with  male-female  co-founders,  which  captured  only  8.8 %  of  the 
capital raised in 2021.116 

2.1.5 

IP protection 

Strengthening intellectual property rights (IPR) protection has the potential to open new 
funding  channels  for  innovative  enterprises.117  IP  protection  typically  provides 
companies  with  a  competitive  advantage,  especially  regarding  technologies  that  can  be 
copied once the product  is on the market.  IP strategies also  enable start-ups and SMEs to 
expand  their  business  by  collaborating  with  partners,  through  participating  in  innovation 
projects,  pairing  with  large  companies  to  provide  supplementary  services,  or  licensing  their 
technologies  or  brands  to  third  parties.  As  such,  a  stronger  IPR  protection  can  serve  as 
positive signalling mechanism to investors. 

Additionally, protected, valued and transferable IPR can increase collateral availability, 
thereby  easing  innovative  firms’  access  to  finance.118  Young  innovative  start-ups  and 
SMEs  rely  considerably  on  intangible  assets,  but  typically  lack  tangible  assets,  which  can 
more  easily  be  pledged  as  collaterals  to  access  external  financing.  Although  the  practice  of 
using IPR to back loans is increasing, large firms appear to benefit more from this opportunity 
as  compared  to  SMEs.  One  aspect  hindering  SMEs’  opportunities  in  exploiting  IPR-backed 
loans  relates  to  the  significant  capacity  constraints  SMEs  face  when  applying  for  patent 
protection (e.g. payment of specific fees and burdensome administrative procedures, typically 
better  handled  by  expensive  patent  consults).  In  this  regard,  policy  interventions  aimed  at 
increasing the use of IPR-backed financing represent an important opportunity to enhance the 
availability  of  bank  finance  for  innovative  enterprises119,  thereby  providing  start-ups  and 
SMEs  with  the  same  opportunities  as  larger  firms  to  access  a  larger  pool  of  financing 
resources.120 

2.2 

Framework conditions for innovation 

In  order  to  ensure  well-functioning  markets  that  incentivise  competition  and  innovation, 
thereby  maximising  the  impact  of  EU  R&I  investments,  Europe  needs  a  fit-for-purpose, 
forward-looking  and  overall  innovation-friendly  regulatory  framework.  Regulation  can  be  a 
powerful  instrument  to  foster  innovation  in  the  EU.  The  emergence  of  new  practices, 
technologies and business models and the acceleration of innovation call for more flexible and 
experimental approaches to regulation, such as the implementation of the innovation principle 
as well as regulatory sandboxes and innovation clauses.  

2.2.1 

Regulatory environment matters for innovation 

Strong institutions help to generate a more innovative environment. Institutional quality 
is strongly associated with innovation capacity, and this relationship is confirmed for different 

115 Atomico (2021), State of European Tech 2021. 
116 Atomico (2021), State of European Tech 2021. 
117  Demmou,  L.  and  G.  Franco  (2021),  Mind  the  financing  gap:  Enhancing  the  contribution  of  intangible  assets  to 
productivity, OECD Economics Department Working Papers, No. 1681, OECD Publishing, Paris. 
118  Demmou,  L.  and  G.  Franco  (2021),  Mind  the  financing  gap:  Enhancing  the  contribution  of  intangible  assets  to 
productivity, OECD Economics Department Working Papers, No. 1681, OECD Publishing, Paris. 
119  Demmou,  L.  and  G.  Franco  (2021),  Mind  the  financing  gap:  Enhancing  the  contribution  of  intangible  assets  to 
productivity, OECD Economics Department Working Papers, No. 1681, OECD Publishing, Paris. 
120 Brassell, M., & King, K. (2013), “Banking on IP”, The role of intellectual property and intangible assets in facilitating 
business finance, The Intellectual Property Office. 

27 

 
                                                 
countries.121 Respect for the rule of law, in particular independent, quality and efficient justice 
laundering  and  anti-fraud 
systems,  effective  anti-corruption  structures,  anti-money 
frameworks, are important factors of the business environment and of the functioning of the 
Single  Market122.  In  addition  to  the  European  Semester,  the  Commission’s  Rule  of  Law 
Report also covers in one of its pillars the functioning of justice systems. Research shows the 
positive  relationship  between  the  Global  Innovation  Index123,  GDP  per  capita,  and  various 
measures  of  institutional  quality:  rule  of  law124,  regulatory  quality125  and  control  of 
corruption126. Regulation  matters at all stages of the innovation process, but  the relationship 
between regulation and innovation is complex. 

On  the  one  hand,  regulation  can  be  a  barrier  for  innovation  when  it  is  not  properly 
designed or when it stifles competition. Ineffective regulation raises compliance costs, using 
entrepreneurs’  resources  and  time.  Inflexible  regulation  or  regulation  that  lags  behind 
innovation cycles can for example prevent the commercialization of an innovative product or 
its scaling up. Prescriptive regulation may also not generate sufficient incentives for firms to 
seek improvement of their product or service beyond what is specified in the regulation.  

On the other hand, regulation can act as a major driver of innovation: it brings stability 
and certainty, which matter for investment and planning and enables firms to operate on safe 
legal grounds, but it can also create strong stimulus for innovation through standard setting127 
or regulatory stringency128. Regulation may also have impacts on innovation at the systemic 
level, when it shifts investment opportunities to different actors. This could occur for example 
in  the context  of the twin transition,  supported by  the European Green Deal  and the Digital 
Decade priorities. 

Hence, regulation can be a powerful instrument to foster innovation in the EU. However, 
several factors can prevent this. The EU is faced with challenges common to other regulatory 
systems,  e.g.  how  to  ensure  that  regulation  is  agile  enough  to  adapt  rather  than  react  to  the 
pace  of  innovation;  when  and  how  to  regulate  disruptive  innovation,  while  only  limited 
evidence  is  available.  In  addition,  EU-specific  challenges  may  also  come  into  play.  These 
include  the  length  of  the  legislative  process,  risks  of  market  fragmentation  if  the  same 
innovation 
in  national 
treated  differently  across  Member  States,  and  problems 
implementation  of  EU  regulation  (inadequate  transposition  or  implementation,  gold-plating, 

is 

121  Rodríguez-Pose,  A.,  Di  Cataldo,  M.  (2015),  ‘Quality  of  government  and  innovative  performance  in  the  regions  of 
Europe’,  Journal  of  Economic  Geography,  15(4),  pp.  673-706;  Tebaldi,  E.,  Elmslie,  B.  (2013),  ‘Does  institutional  quality 
impact innovation? Evidence from cross-country patent grant data’, Applied Economics, 45(7), pp. 887-900; Hussen, M. S., 
& Çokgezen, M. (2021), ‘The impact of regional institutional quality on firm innovation: evidence from Africa’,  Innovation 
and Development, 11(1), pp. 69-90. 
122 Annual Sustainable Growth Survey 2022, COM(2021)740 final, p. 8. 
123 The “Global Innovation Index” (World Bank) ranks the innovation ecosystem performance of economies around the globe 
relying on 81 different indicators, from R&D intensity, education, patenting, ICT, infrastructure to political institutions. 
124  “Rule  of  law”:  the  key  principles  of  the  rule  of  law  are  common  to  all  Member  States  –  legality,  legal  certainty, 
prohibition  of  the  arbitrary  exercise  of  executive  power,  effective  judicial  protection  by  independent  and  impartial  courts 
respecting fundamental rights in full, the separation of powers, permanent subjection of all public authorities to established 
laws and procedures, and equality before the law – are enshrined in national constitutions and translated in legislation (2021 
Rule of Law Report, COM(2021)700 final, p. 1). 
125 “Regulatory quality” measures the ability of the government to formulate and implement sound policies and regulations 
that permit and promote private sector development (World Bank). 
126  “Control  of  corruption”  measures  extent  to  which  public  power  is  exercised  for  private  gain,  including  both  petty  and 
grand forms of corruption, as well as "capture" of the state by elites and private interests (World Bank). 
127  Standard  setting  may  improve  the  market  function  as  it  provides  guidance  to  producers  for  the  design  of  a  new  and 
innovative product, while it increases at the same time trust for the customers in a product that is yet unknown. Setting the 
standards at ambitious levels can provide strong incentives to businesses to innovate and shift from outdated techniques and 
procedures to new ones. 
128 Strict environmental regulations can encourage innovations that help improve commercial competitiveness (Porter, M.E., 
van  der  Linde,  C.  (1995),  ‘Toward  a  New  Conception  of  the  Environment  Competitiveness  Relationship’,  Journal  of 
Economic Perspectives, 9(4)). 

28 

 
                                                 
burdens  or  obstacles  in  the  delivery  phase  of  the  legislation).  These  factors  can  also 
discourage  investment  and  limit  innovation.  At  the  same  time,  regulation  alone  may  not  be 
sufficient.  Innovation  requires  public  buy-in  and  trust,  with  societal  uptake  of  innovation 
being also a demand-side indicator of emerging regulatory gaps or deficiencies. 

the 

When designing and evaluating regulation, the growing role of digitalisation in various 
sectors  of  the  economy  is  not  always  reflected;  the  same  applies  to  the  increasingly  data-
driven nature of innovation. In some instances, the opportunities offered by digitalisation can 
implementation  of  and  compliance  with  existing  rules,  by  reducing 
facilitate 
administrative  burdens  without  affecting  intended  policy  objectives.  More  importantly, 
digitalisation also  matters for policy design and for identifying policy approaches that  grant 
sufficient  adaptability  to  accommodate  innovation  and  fast  technological  change,  where 
appropriate.  Indeed,  while  digitalisation  and  technology  are  enablers  of  solutions,  they  may 
also be the sources of new risks, which also need to be assessed and understood. 

Recent  efforts  aim  at  reinforcing  consideration  of  innovation,  both  in  terms  of  possible 
impacts  of  policies  on  innovation,  and  the  influence  that  innovation  itself  can  have  on  the 
design  and  implementation  of  EU  policies  and  legislation.  In  particular,  DG  Research  and 
Innovation (DG RTD) is stepping up efforts within the European Commission to implement 
the  innovation  principle  (see  Box  1)  at  all  relevant  stages  of  policy-making  and  create 
future-proof  framework  conditions  to  achieve  sustainable  development.  The  innovation 
principle is an approach ensuring that the processes of preparing, revising and implementing 
EU  legislation  take  into  account  emerging  innovations  that  are  in  line  with  EU  policy 
objectives,  thus  facilitating  their  development  and  adoption.  This  simultaneously  requires 
policy to become more agile - able to anticipate, adapt and adjust to changing circumstances - 
while  maintaining  or  introducing  regulatory  certainty  and  relevant  legal  protection  where 
necessary.  

Box 1. The innovation principle 

At the EU level, the European Commission recognises the importance of regulation in stimulating 
innovation  to  support social,  environmental and  economic  objectives.  In  this  context,  it  applies  an 
innovation  principle,  when  preparing  legislative  initiatives.  The  innovation  principle  helps  to 
ensure that EU legislation is analysed and designed so as to encourage innovation to deliver social, 
environmental  and  economic  benefits  and  help  protect  Europeans.  It  supports  the  EU's  better 
regulation  approach  to  help  enact smart,  future-oriented regulation. The  Commission  mentions  the 
innovation  principle  notably  in  its  Communication  on  a  Renewed  Agenda  for  Research  & 
Innovation,  in  the  Single  Market  Communication  and  in  the  Communication  on  Artificial 
Intelligence.  It  also  appears  in  the  recitals  of  the  Horizon  Europe  Regulation  proposals.  The  2019 
Commission Communication on Better Regulation acknowledges the need “to have regulation that 
fosters and, at the same time, harnesses innovation to the benefit of the environment, the economy 
and EU citizens.  

The  implementation  of  the  innovation  principle  occurs  by:  using  horizon  scanning  and  innovative 
regulatory  approaches  to  harness  future  technological  advances  and  steer  them  in  the  direction  of 
delivering on European Commission priorities; designing new legislation with innovation in mind, in 
particular  through  impact  assessments;  addressing  perceived  regulatory  obstacles  to  innovative 
solutions through innovation deals and ensuring that evaluations consider whether regulations are fit 
for the future. 

In the context of the innovation principle, to clarify how existing regulatory requirements apply to 
innovative  ideas,  the  Commission  has  also  been  piloting  Innovation  Deals  to  help  innovators 
address  perceived  EU  regulatory  obstacles.  Early  results  in  pilots  on  batteries  and  water  reuse 

29 

 
suggest the experience can provide useful feedback to improve regulation and promote innovation. 

2.2.2 

Experimental approaches to regulation 

By  its  very  nature  and  speed,  innovation  may  often  call  into  question  traditional 
approaches to regulation. This raises the broader question of how regulation could be made 
future-proof and fit for purpose to continue to be effective while meeting the desired policy 
goals  in  a  fast-moving  and  increasingly  complex  environment.  Experimental  approaches  set 
out in regulations, including the so-called ‘regulatory sandboxes’, are relevant in this context. 
When  testing  new  solutions  and  alternative  business  models,  accountability  and  the 
involvement of those who are impacted by the tested innovation are essential.  

Broadly  speaking,  a  regulatory  sandbox  is  a  framework  that  enables  the  testing  of 
innovations  in  a  controlled  real-world  environment,  under  a  specific  plan  developed  and 
supervised  by  a  competent  authority.  Sandboxes  usually  entail  a  temporary  loosening  of 
applicable  rules,  and  feature  safeguards  to  preserve  overarching  regulatory  objectives,  like 
safety and consumer protection. They are a relatively new practice in most regulatory systems 
and experience with implementation of such sandboxes is still limited. At EU level, initiatives 
paving the way for sandboxes include the Commission proposal for a regulation on Artificial 
Intelligence  and  the  pilot  regime  for  market  infrastructures  based  on  Distributed  Ledger 
Technology (DLT), as well as a regulatory sandbox for blockchain solutions in collaboration 
with  the  European  Blockchain  Partnership  and  supported  under  the  Digital  Europe 
Programme.  At  national  level,  over  half  of  the  Member  States  have  set  up  sandboxes  and 
additional  ones  are  in  the  pipeline.  Applications  of  sandboxes  are  mostly  in  the  areas  of 
finance, transport and energy.  

Closely connected to sandboxes are experimentation clauses: these enable authorities tasked 
with implementing and enforcing legislation to  exercise a degree of flexibility in relation to 
innovative technologies, products or approaches, even if they do not conform to all existing 
legal  requirements.  Experimentation  clauses  can  serve  as  the  legal  basis  for  sandboxes  or 
simply allow for flexibility under certain circumstances.  

in  an 

On 16 November 2020 the Council adopted a set of conclusions129 on the role of regulatory 
sandboxes  and  experimentation  clauses 
innovation-friendly,  future-proof, 
sustainable  and  resilient  EU  regulatory  framework.  In  these  conclusions,  the  Council 
affirms that regulatory sandboxes can offer significant opportunities to innovate and grow 
for  all  businesses,  especially  SMEs,  including  micro-enterprises  as  well  as  start-ups,  in 
industry,  services  and  other  sectors.  The  conclusions  also  encourage  the  Commission  to 
continue considering the use of experimentation clauses on a case-by-case basis when drafting 
and reviewing legislation, as well as to evaluate the use of experimentation clauses in ex-post 
evaluations and fitness checks on the basis of an exchange of information with member states. 

There  are  other  experimentation  frameworks  without  being  a  fully-fledged  sandbox, 
such  as  test  beds,  living  labs  and  digital  innovation  hubs  that  enable  innovators  to  test  and 
demonstrate new technologies and solutions. These controlled experimentation activities can 
also take place in real-world environments, allowing for early engagement with end users and 
relevant  stakeholders,  as well as with  regulation. Smaller-scale  experimentation  frameworks 

129 https://data.consilium.europa.eu/doc/document/ST-13026-2020-INIT/en/pdf. 

30 

 
 
                                                 
particularly  target  start-ups  and  SMEs.  These  experimentation  frameworks  can  at  once 
support early uptake of existing regulation and provide evidence on new regulatory needs. 

 

In  today's  rapid  development  of  science  and  technology,  test  and  demonstration 
facilities  are  key  to  quickly  turning  research  results  into  innovative  products  and 
services. A test bed is a set of entities, providing common access to physical facilities, 
capabilities  and  services  required  for  the  development,  testing  and  upscaling  of 
technology  and advanced materials,  e.g. in  industrial  environments.  The objective of 
test  beds  is  to  bring  technologies  and  advanced  materials  within  the  reach  of 
companies and users in order to advance from validation in a laboratory to prototypes 
in industrial environments.  

  Living  Labs  are  collaborative  initiatives  to  co-create  knowledge  and  innovations. 
There  is  no  commonly  agreed  definition  but  the  European  Network  for  Living  Labs 
describes them as user-centred, open innovation ecosystems based on systematic user 
co-creation  approach, integrating  research  and  innovation  processes  in real-world 
communities  and  settings.  Living  Labs  embed  the  notion  of  the  quadruple  helix,  i.e. 
involvement of four major actors in the innovation system: science, policy, industry, 
and society.130 These actors come together in Living Labs and their interaction fosters 
collaborative  innovation,  validation,  rapid  prototyping  and  scale  up  innovations. 
Through  its  Living  Labs  programme131  the  JRC  is  exploring  the  potential  to  extract 
regulatory  insights  from  testing  and  demonstration  of  new  technologies  in  a  Living 
Lab  environment.  In  this  context  the  Commission  also  supports  the  creation  of  a 
network of 100 living labs experimenting and testing solutions for soil health in rural 
and urban areas.132 

  European  Digital  Innovation  Hubs  (EDIHs)  funded  by  the  new  Digital  Europe 
Programme  provide ‘Test before Invest’ to SMEs as one of their main objectives. The 
group  of  services  enabling  test  before  invest  may  include:  awareness  raising,  digital 
maturity  assessment,  demonstration  activities,  visioning  for  digital  transformation, 
fostering the integration, adaptation and customisation of various technologies, testing 
and  experimentation  with  digital  technologies  (software  and  hardware),  knowledge 
and  technology  transfer.  Special  focus  is  given  on  the  key  technologies  promoted  in 
Digital Europe Programme: HPC, AI, and Cybersecurity.133 

  Furthermore,  to  embrace  the  transition  towards  low-impact  green  solutions,  the 
industry is  looking at  R&I for new ways to  power its  activities and to  reengineer its 
processes.  The  current  speed  of  this  industrial  transformation  is  insufficient  and  EU 
policies  should  play  a  role  in  accelerating  this  transformation.  To  meet  these 
challenging  objectives,  the  EU  INnovation  Centre  for  Industrial  Transformation 
&  Emissions  (INCITE)  (see  Box  2)  will  become,  after  the  adoption  of  the  new 
Industrial  Emissions  Directive,  the  first  independent  centre  for  identification  and 
evaluation  of  emerging  techniques  with  high  potential  for  decarbonisation,  pollution 
reduction and/or for increasing circularity in large agro-industrial installations. It will 
open  the  possibility  to  allow  more  time  for  operators  to  test  and  implement  these 
techniques at full industrial scale 

130 Schütz, F., Heidingsfelder, M.L., Schraudner, M. (2019), 'Co-shaping the Future in Quadruple Helix Innovation Systems: 
Uncovering  Public Preferences  toward  Participatory  Research  and  Innovation',  She  Ji:  The  Journal  of  Design,  Economics, 
and Innovation, 5(2), pp. 128-146. 
131 https://joint-research-centre.ec.europa.eu/pilot-living-labs-jrc_en. 
132 
calls/horizon-europe/eu-missions-horizon-europe/soil-health-and-food_en. 
133  JRC  online  Catalogue  of  DIHs  and  Candidate  EDIHs:  https://s3platform.jrc.ec.europa.eu/web/guest/digital-innovation-
hubs-tool. 

https://ec.europa.eu/info/research-and-innovation/funding/funding-opportunities/funding-programmes-and-open-

31 

 
 
                                                 
Box 2. Instruments to accelerate the industrial uptake of innovation  

The Industrial Emissions Directive (IED) is the main instrument of the European Union to control 
the  environmental  impact  of  around  52  000  large-scale  agro-industrial  installations  with  high-
pollution  risk  in  Europe  .  This  is  done  in  an  integrated  manner,  on  a  sector-by-sector  basis134  and 
through the application of best available techniques (BAT). BATs are specified in sectoral reference 
documents,  which  also  list  promising  emerging  techniques  that  could  become  “a  standard”  in  the 
future.  In  this  way,  the  IED  creates  a  direct  link  between  technological  innovation  and  the 
establishment of legally binding emission limits for industry.  

Experience  shows  that  access  to  finance  is  only  one  element  to  succeed  in  innovation  deployment. 
Another challenge is to pool the results of innovation into tangible and workable solutions that 
could promote emerging techniques and provide a convincing business case to the industry. 

The  EU  Innovation  Centre  for  Industrial  Transformation  &  Emissions  proposed  in  the  revised 
IED135 aims at filling this gap. INCITE will scout for emerging techniques worldwide, it will identify 
and  evaluate  new  processes  and  techniques  by  assessing  their  Technology  Readiness  Level  and 
environmental performance and, if they are deemed ready for use at an industrial scale within a short 
timescale, incorporate them in the Best Available Techniques framework. 

In addition, plant operators will be allowed up to two years instead of the current nine months to test 
emerging techniques within their own installations. During this time they will be allowed temporary 
derogations from selected IED permit conditions, subject to monitoring from permitting authorities. 
Frontrunners  will  also  be  allowed  an  additional  2  years  to  implement  new  environmentally  better 
techniques (i.e. a total of 6 years) that INCITE has identified as being close to market deployment. 
This work is essential for an efficient deployment of breakthrough technologies, thereby minimising 
the risk of technological lock-ins or stranded technologies. 

The information collected and evaluated by INCITE will provide a sound, evidence-based technical 
basis  for  industry  to  develop  site-specific  Industrial  Transformation  Plans  as  part  of  their 
environmental management system. Operators of energy-intensive installations will need to do it by 
2030.  These  Transformation  Plans  will  show  how  each  plant  will  contribute  to  achieving  the  EU’s 
2050 zero pollution ambition, circular economy and decarbonisation objectives. Transformation Plans 
will promote transition pathways that create technologies favouring integrated solutions and will build 
on  INCITE  findings  as  decarbonisation  and  pollution  reduction  reinforce  each  other.  INCITE  will 
contribute towards putting the EU’s industry in the front-foot of industrial transformations, potentially 
gaining first-mover advantage and exporting the acquired know-how on emerging techniques. 

2.3 

Innovation ecosystems across the EU 

2.3.1 

Innovation divide 

Regional  disparities  in  R&I  performance  remain  deep  across  the  EU.  The  Regional 
Innovation  scoreboard  2021  uses  21  indicators  at  regional  level  on  different  aspects 
(framework  conditions,  innovative  outputs,  investments,  impacts,  etc.)  to  assess  the 
performance in R&I of EU regions (NUTS 1 and 2 levels) relative to the EU average score.136 
It  demonstrates  that  there  is  a  clear  innovation  divide  across  the  EU  as  Europe’s  highest 
performing  regions  are  up  to  nine  times  more  innovative  than  the  lowest  performing  ones 
(Figure 18). 

134  Activities  regulated  by  the  IED  include  e.g.  power-plants,  refineries,  waste  treatment  and  incineration,  production  of 
metals, cement, glass, chemicals, pulp and paper, food, and drink, as well as the rearing of pigs and poultry. 
135 COM(2022)156/final 3. 
136 https://ec.europa.eu/info/research-and-innovation/statistics/performance-indicators/regional-innovation-scoreboard_en. 

32 

 
                                                 
Figure 18. Innovation performance of EU regions, 2021 

Source: European Commission, (2022), The Eighth Report on Economic, Social and Territorial Cohesion based 
on Regional Innovation Scoreboard 2021. DG Regional and urban Policy, Publications Office of the European 
Union. Luxembourg Note: AT, BE, FR: NUTS 1. 

The technological output as measured by patents is concentrated in regions with a high 
share of manufacturing and with headquarters of large companies. The innovation divide 
across  regions  located  in  Western  and  Northern  Europe  and  those  in  Central  and  Eastern 
Europe  as  well  as  with  some  Southern  countries  continues  to  be  pronounced.  Some  of  the 
least  innovative  regions  in  Portugal  or  Greece  have  increased  the  contribution  to  EU  total 
patents applications over 2010-2018, but the regions that experienced the highest increases in 
their contribution to EU total patents are in Austria, Belgium and Germany, which are already 
amongst the top innovative regions. 

33 

 
  
 
Figure 19. Total EPO applications (fractional count) per million inhabitants at NUTS 2 
level, 2018 

Source: DG Research and Innovation based on Science Metrix – European Patent Office. 

Scientific  production  measured  by  scientific  publications  shows  a  relatively  dispersed 
pattern across the regions of the EU, although the divide is not as clear as, for example, in 
terms  of  overall  innovation  capacity  (Figure  20).  Many  of  the  lagging  regions,  mostly  in 
Eastern and Southern Europe, show an improvement of performance in scientific output over 
the 2010-2020 period  even though the dispersion between European regions has jumped up 
during  2020,  possibly  due  to  the  impact  of  COVID-19  crisis  on  scientific  production.  The 
production of high-quality publications continues to be highly concentrated in a relatively few 
regions. Hence, the 10% top cited publications are mostly produced in Western Europe, with a 
dominance of Dutch and Nordic regions (Figure 21). 

34 

 
 
Figure  20.  Scientific  publications  (fractional  count)  per  1000  inhabitants  at  NUTS  2 
level, 2020 

Source: DG Research and Innovation based on Science Metrix - Scopus. 

35 

 
 
Figure 21. Percentage of highly-cited publications (top 10%) at NUTS 2 level, 2018 

Source: DG Research and Innovation based on Science Metrix - Scopus. 

Technology  investments  also  tend  to  be  geographically  concentrated,  raising  the 
concerns  of  increasing  inequality  among  regions  and  how  to  improve  multilevel 
governance  and  synergies.  Thus,  policy  interventions  aiming  at  reinforcing  and  improving 
the  functioning  of  local  innovation  ecosystems,  particularly  in  less  developed  regions,  are 
particularly important for achieving  the twin transition,  together with  the  interconnection of 
regional ecosystems and hubs. 

Over the 2015-2018 period, regional disparities in technological innovation have been on 
an increasing trend. The EU has experienced a convergence process in patenting activity in 
the beginning of the 2000s, but it has stopped in the middle of the 2010s and, since 2015, the 
gap  between  the  most  and  the  least  innovative  regions  in  terms  of  patent  applications  has 
widened  (Table  1).  As  far  as  scientific  publications  are  concerned,  it  appears  that  the 
convergence process, which was pronounced in the beginning of the 2000s, is still valid over 
the 2016-2020 period, but at a much slower pace than it was. Figure 22 also demonstrates 
that,  over  2016-2021,  the  share  of  emerging  innovators  (the  least  innovative  class)  has 
increased in the less developed regions, meaning that more regions are lagging behind in 2021 
compared  to  2016.  Less  developed  regions  face  indeed  more  difficulties  in  translating 
research  results  into  innovation  and  the  returns  in  terms  of  patenting  on  additional  R&D 

36 

 
 
investment  tend  to  be  lower  than  in  other  regions.137  Although  there  is  convergence  pattern 
among  scientific  publications,  many  disadvantages  in  less  developed  regions  of  Europe 
prevail and these are less capable of generating innovation from R&D inputs.138 

Table  1.  Annual  growth  between  2001  and  2018/2020  for  research  outputs  (patent 
applications and scientific publications – fractional count) per groups of regions (NUTS 
2 level)  

Annual Growth 

Patents per million inhabitants 

2001-2005 

2006-2010 

2011-2014 

2015-2018 

Most performant regions (1st tercile) 

Middle performers (2nd tercile) 

Least performant regions (3rd tercile) 

1.1 

4.5 

16.2 

-0.6 

0.6 

1.7 

0.3 

0.7 

5.3 

-3.6 

-4.7 

-11.8 

Patents 

2001-2005 

2006-2010 

2011-2014 

2015-2018 

Most performant regions (1st tercile) 

Middle performers (2nd tercile) 

Least performant regions (3rd tercile) 

2.4 

5.5 

16.7 

0.1 

1.6 

1.6 

-0.1 

1.3 

4.1 

-2.8 

-2.4 

-12.6 

Publications per million inhabitants 

2001-2005 

2006-2010 

2011-2015 

2016-2020 

Most performant regions (1st tercile) 

Middle performers (2nd tercile) 

Least performant regions (3rd tercile) 

4.1 

6 

10 

2.9 

4.3 

9.7 

1.4 

2.6 

4 

0.9 

1.7 

2.1 

Publications 

2001-2005 

2006-2010 

2011-2015 

2016-2020 

Most performant regions (1st tercile) 

Middle performers (2nd tercile) 

Least performant regions (3rd tercile) 

4.6 

6.5 

11.2 

3.3 

4.6 

9.2 

2.1 

2.4 

4.1 

1.2 

1.3 

2.6 

Source: DG Research and Innovation based on Science Metrix – Scopus and European Patent Office. 

137  Sterlacchini,  A.,  (2008),  ‘R&D.  higher  education  and  regional  growth:  Uneven  linkages  among  European 
regions’, Research Policy, 37. 
138 Rodríguez-Pose, A, Ketterer, T. (2020), ‘Institutional change and the development of lagging regions in Europe’, Regional 
Studies, 54(7), pp. 974-986. 

37 

 
  
                                                 
Figure  22.  Share  of  EU  population  by  Regional  Innovation  Scoreboard  category  and 
regional level of development, 2021 and 2016 

Rural  and  urban  areas  differ  in  the  intensity  of  innovation  as  well  as  in  the  type  of 
innovation.  As  illustrated  in  Table  2,  urban  regions  are  much  more  active  in  patenting  and 
publications  activities  than  rural  or  intermediate  regions.  In  Europe,  metropolitan  regions 
gather 74% of patent applications in 2018, 84% of scientific publications in 2020, and 87% of 
highly  cited  publications.  When  it  comes  to  the  types  of  innovation,  it  appears  that  high-
density  areas  are  characterized  by  a  higher  degree  of  unconventionality  in  innovation, 
meaning that research activities and product innovations tend to be concentrated in large 
cities  or  more  agglomerated  settings,  while  process  innovations  and  less  technology-
intensive activities  tend to be  more distributed in space.139 Besides,  while  rural  regions 
more rarely produce learning related to R&D activities (“learning by searching”) they have a 
fundamental  role  in  the  other  dimensions  of  learning  (by  doing;  by  using;  and  –  in 
particular – by interacting). 

139 Eder, J. (2019), ‘Innovation in the Periphery: A Critical Survey  and Research Agenda’,  International Regional Science 
Review, 42(2), pp. 119-146; E. Berkes, R. Gaetani., (2020), The Geography of Inconventional Innovation, Economic Journal, 
131(636), pp. 1466-1514. 

38 

 
 
                                                 
Table 2. Urban-rural innovation divide in Europe 

Type of regions 

Regions 
predominantl
y urban 

Regions 
intermediate
. close to a 
city 

Regions 
intermediate
. remote 

Regions 
predominantly 
rural. close to 
a city 

Regions 
predominantly 
rural. remote 

Number of regions in 
Europe 

Publications per million 
inhabitants 2020 (frac. 
Count) 

% change from 2014 to 
2020 

Share of publications 
2000-2020 

Average of Highly 
Cited publications (Top 
10%) over total 
publications 2000-2020 

Average of Highly 
Cited Publications (Top 
1%) over total 
publications 2000-2020 

Patents per million 
inhabitants 2018 

% change from 2014 to 
2018 

Share of patents 2000-
2018 

Share of patents cited 
at least one time over 
the total patents 2000-
2018 

240 

464 

48 

265 

150 

2078.9 

1145.2 

400.5 

397.7 

302.9 

+ 6.46% 

+9.3% 

+19.2% 

+14.4% 

+44.5% 

63.7% 

30.5% 

0.6% 

4.2% 

1.0% 

0.086% 

0.072% 

0.063% 

0.052% 

0.06% 

0.008% 

0.007% 

0.005% 

0.004% 

0.005% 

132.4 

104 

31.3 

65.8 

30.7 

-14.6% 

-14.5% 

-29.8% 

-4.7% 

-15.2% 

52.8% 

36.1% 

0.8% 

8.6% 

1.7% 

17.4% 

19.5% 

14.8% 

20.0% 

21.6% 

Source:  DG  Research  and  Innovation  -  Common  R&I  Strategy  and  Foresight  Service  -  Chief  Economist  Unit 
based on Eurostat and Science Metrix – European Patent Office and Scopus. 

Regions with lower innovation capacity tend to rely relatively more on government and 
higher  education  sectors  for  R&D  investments,  whereas  strong/leading  innovators 
benefit  more  from  the  business  enterprise  R&D  investments.  Interestingly,  it  seems  that 
innovation leaders are also characterized by the highest share of investments in R&D coming 
from the government, but less from the higher education sector (Figure 23).  

39 

 
 
  
  
  
  
  
  
  
  
  
  
Figure  23.  Share  of  2019  R&D  investments  per  sectors  of  performance  across  EU 
regions classified according to RIS scores 

Source: DG Research and Innovation based on Eurostat and the Regional Innovation scoreboard. 

Note: no data for BE, FR and NL. 

Institutional quality, a key determinant in the innovation capacity of regions, is high in 
the  core  of  the  EU,  but  with  a  high  degree  of  regional  variation  and  heterogeneity 
(Figure  24).  Good  institutional  frameworks  improve  economic  and  innovation  prospects  as 
they reduce uncertainty on the appropriability of the returns on investment, which is already 
higher  in  the  context  of  R&D  and  innovative  activities.140  Besides,  institutional  quality 
ensures  the  effective  and  generalised  protection  of  property  rights,  provides  the  public 
infrastructure needed for the diffusion and use of technology, allows for the effective control 
of  corruption,  and  ensures  the  efficient  delivery  of  public  goods  and  services,  including 
education at all levels. 

140  Rodríguez-Pose,  A.,  Di  Cataldo,  M.,  (2015),  ‘Quality  of  government  and  innovative  performance  in  the  regions  of 
Europe’, Journal of Economic Geography, 15(4), pp. 673-706. 

40 

 
 
 
 
                                                 
Figure 24. Quality of government across EU regions, 2021 

Source:  Charron,  N.,  Lapuente,  V.,  Bauhr,  M.  (2021),  Sub-national  Quality  of  Government  in  EU  Member 
States, University of Gothenburg: The QoG Working Paper Series 2021:4. 

The  fast  pace  of  innovation  dynamics  poses  new  challenges  on  production  systems  of 
many  less  developed  regions,  which  are  often  not  sufficiently  oriented  towards 
knowledge  intensive  sectors  as  mirrored  in  their  lower  performance  of  their  regional  R&I 
systems  (Figure  25).  Many  transition  regions  are  characterised  by  low  performance  on 
R&I have also not done well as regards productivity growth. It has become increasingly 
clear over recent years that not all regions in the EU with a GDP per capita below the average 
are catching  up.141  Iammarino  et  al. (2019)142 demonstrate that while  economic activity and 
wealth  have  increasingly  accumulated  in  large  urban  agglomerations,  often  capital  cities, 
many  areas  have  increasingly  been  caught  in  ‘development  traps’.  Since  2000,  an 
increasing number of regions have experienced stagnating economic development in terms of 
GDP growth, productivity  and  employment  after  reaching  a level  of GDP  per capita of 75–
100%  of  the  EU  average.  Many  of  these  regions  are  less  cost-competitive  than  less 
developed regions, characterised by the low cost of capital and labour, and by being less 
innovative or productive than more developed regions. Accordingly, their costs tend to be 
too  high  to  compete  with  less  developed  regions  and  their  innovation  systems  not  strong 
enough to compete with more developed regions. 

141  European  Commission,  (2022),  Cohesion  in  Europe  towards  2050.  Eight  report  on  economic,  social  and  territorial 
development, Directorate-General for Regional and Urban Policy Luxembourg: Publications Office of the European Union. 
142  Iammarino  S.,  Rodriguez-Pose  A.,  Storper  M,  (2019),  ‘Regional  inequality  in  Europe:  evidence,  theory  and  policy 
implications’, Journal of Economic Geography, 19(2), pp. 273–298 

41 

 
 
                                                 
Figure  25.  Labour  productivity  (GDP  per  person  employed),  2010  and  annual  real 
growth, 2010-2019, classified by regional development. 

Source:  DG  Research  and  Innovation  based  on  Eurostat.  Note:  GDP  per  worker  in  current  PPS.  FR  and  PL 
NUTS2 regions not included. 

Remaining  for  long  in  a  development  trap  is  brewing  increasing  inequalities  and 
geography  of  EU  discontent.143  Subpar  economic  performances,  lack  of  employment 
opportunities,  and  loss  of  competitiveness  due  to  low  productivity  levels  are  causing  social 
and  political  resentment  towards  what  is  increasingly  regarded  –  justly  or  unjustly  –  as  a 
system that does not benefit areas being left behind.144 

2.3.2 

Interregional collaboration across the EU research and innovation ecosystems 

Inter-regional  co-patenting  remains  very  limited  in  the  EU,  even  if  it  has  slightly 
increased  from  1992  to  2016.  Over  3/4  of  collaborations  on  patents  (co-patenting)  takes 
place  within  the  same  region,  somewhat  less  than  1/5  is  inter-regional  with  stakeholders  in 
other  regions  of  the  same  country  and  only  3-5%  is  inter-regional  across  national  borders 
(Figure  26).  Still,  there  are  some  improvements  in  terms  of  inter-regional  collaboration 
beyond national borders – the share from 3.2% over the 1992-1996 period to 5.4% over the 
2012-2016 period. The importance of proximity goes beyond production of research and 
innovations,  as  it  seems  that  knowledge  diffusion  also  remains  mostly  national.  For 
example, the EIB (2021)145 used the cross-country citation index, which measures how often 
countries refer to one another in relative terms, to demonstrate  that most green knowledge 
stays within national borders or regions. For both technological innovation and diffusion of 
knowledge,  collaboration  and  circulation  across  regions  and  Member  States  is  as  critical  to 
tackle  global  societal  challenges  as  proximity  can  be.  It  ensures  that  inventions  and 
knowledge  benefit  from  work  already  done  by  others.  Policy  implications  include 
strengthening  the  ties  between  regions  across  national  borders,  including  through  R&I 
policies at European level. 

143  Dijkstra  L.,  Poelman  H.,  Rodriguez-Pose  A.,  (2018).,  The  geography  of  EU  discontent,  European  Commission,  DG 
Regional and Urban Policy, Luxembourg: Publications Office of the European Union, WP 12/2018. 
144 European Commission, (2020), Falling into the Middle-Income Trap? A Study on the Risks for EU Regions to be Caught 
in a Middle-Income Trap, Final Report, Luxembourg: Publications Office of the European Union. 
145 European Investment Bank (2021), EIB Investment Report 2020/2021: Building a smart and green Europe in the COVID-
19 era. 

42 

 
 
                                                 
Figure 26. Inter- and intra-regional collaboration in patenting (co-patenting) in Europe 
over 1992-2016 

Source:  Science, Research and Innovation Performance of the EU Report 2022. 

Innovation related to some strategic technologies follows a very specific geography.146 By 
mapping links between technologies and the current knowledge structure of EU regional eco-
systems, it becomes possible to predict the growth potential of new technologies. Relatedness 
density  maps147  (Figure  27)  indicate  which  EU  regions  are  in  the  best  position  to  lead 
technological change in  seven key technologies. Each technology is characterized by a very 
specific  geography.  Ile  de  France,  Oberbayern  have  core  technologies  related  to  AI  –  but 
when  it  comes  to  batteries  Rhone-Alpes,  Stuttgart,  or  Trondelag  (Norway)  are  better 
positioned. mRNA connects most to technologies found in the capital region of Denmark or 
Languedoc-Roussillon. 

146 Balland, P.A., (2022), Innovation policy for a complex world, In : Science, Research and Innovation Performance of the 
EU  Report  2022,  European  Commission,  DG  Research  and  Innovation,  Publications  Office  of  the  European  Union. 
Luxembourg. 

147  Relatedness  density  indicates  –  for  any  domain  -  the  shares  of  related  technologies  that  are  present  in  a  region.  To 
illustrate this principle with a simplified example, let’s say that 10 technologies are related to AI and 8 of these technologies 
can be found in Paris, relatedness density between AI and Paris is 8/10 = 80%. Regions with the highest relatedness density 
are the strongest candidates for prioritizing funding. 

43 

 
 
 
                                                 
 Figure 27. Relatedness density maps for seven key technologies in the EU 

Source:  Balland,  P.A.,  (2022),  Innovation  policy  for  a  complex  world,  In  :  Science,  Research  and  Innovation 
Performance  of  the  EU  Report  2022,  European  Commission,  DG  Research  and  Innovation, 
Publications Office of the European Union. Luxembourg. 

A  carefully  designed  research  &  innovation  policy  could  be  technology-specific  and 
empower  relevant  knowledge  eco-systems.  It  is  also  important  to  stimulate  inter-regional 
linkages. Links that are the most impactful for regional leadership and innovation are the ones 
that  build  on  complementary  assets.148Another  fundamental  way  to  document  the  spatial 
distribution of knowledge is not to look at regions in isolation with each other’s but to analyse 
the  European  inter-regional  system  of  innovation.  Figure  28  shows  the  co-inventor  ties 
between regions149, for all technologies. When looking at collaborations, country borders 
become extremely marked. The top 10 connections of Ile de France - the EU regions with 
the  most  internal  collaborations  –  are  all  other  French  regions.  The  same  goes  for  Upper 
Bavaria  and  other  EU  regions.  European  regions  disproportionally  favour  same-country 
collaborations  over pan-European ones.  This  fact signals  system failure in the innovation 

148 Balland, P. A., Boschma, R. (2021), ‘Complementary interregional linkages and Smart Specialisation: an empirical study 
on European regions’, Regional Studies, 55(6), pp. 1059-1070.  
149 In the network presented, links between regions (n=74) that have more than 10000 internal links are displayed for purely 
visualization purpose. 

44 

 
 
                                                 
systems  that  justify  higher-policy  level  intervention  to  scale-up  EU  technologies  and 
achieve global leadership in the twin transition.  

Figure 28. The EU regional system of innovation – network 

Source:  Balland,  P.A.,  (2022),  Innovation  policy  for  a  complex  world,  In  :  Science,  Research  and  Innovation 
Performance  of  the  EU  Report  2022,  European  Commission,  DG  Research  and  Innovation, 
Publications Office of the European Union. Luxembourg. 

European regions are hosts to pockets of specialisation in specific sectors of the industry, 
including  the  14  European  industrial  ecosystems150.  When  considering  the  industrial 
specialisation  of  European  regions,  over  1100  industry-relevant  specialisation  nodes  across 
the  EU-27  can  be  identified,  accounting  for  19.5%  of  total  employment.  These  pockets  of 
specialisation gather SMEs, large firms,  research organisations, related economic actors and 
institutions, which are located near each other and have reached a sufficient scale to develop 
specialised  expertise,  services,  resources,  suppliers,  and  skills151.  Regional  industry  clusters 
have  a  positive  impact  on  regional  and  industry  performance,  including  job  creation, 
patenting,  and  new  business  formation152,  which  could  explain  the  high  concentration  of 
technological  innovation  in  different  sectors  across  the  EU  regions.  Finally,  research  and 
technology infrastructures (e.g., demonstrators, testbeds, incubators and accelerators) are also 
key  in  creating  and  maintaining  dynamic  R&I  ecosystems  (see  Box  3).  For  technology 
infrastructures there is a need to develop a European Strategy for Technology Infrastructures 

150 Communication from the European Commission, 2021, Updating the 2020 New Industrial Strategy: Building a stronger 
Single Market for Europe’s recovery, COM(2021) 350 final. 
151 Cluster Definitions | European Cluster Collaboration Platform. 
152 Glaeser, E.L., W.R. Kerr, 2009, ‘Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution 
Can We Explain?’, Journal of Economics and Management Strategy, 18 (3), pp. 623–63; Delgado, M., M.E. Porter, and S. 
Stern (2014), ‘Clusters, Convergence, and Economic Performance’, Research Policy, 43(10), pp. 1785-1799. 

45 

 
 
 
                                                 
to  support  technology  co-creation,  scale-up  and  diffusion  across  Europe  to  strengthen  its 
technology sovereignty.153  

Box 3. The role of Research Infrastructures and Technology Infrastructures in Innovation 

The EU benefits from a rich landscape of complementary national, regional and European research 
infrastructures (RIs) and technology infrastructures (TIs). They are enablers for excellent science, 
creation  of  new and fundamental  knowledge  and have  impact  beyond  research to  attract  the  best 
talents,  researchers,  highly  qualified  engineers,  technicians  and  students;  to  further  develop 
regional,  local,  national  and  EU  level  innovation  ecosystems;  and  to  facilitate  the  uptake  of 
technologies by regional and local industries notably SMEs and high-tech companies as well as to 
cooperate at EU level and with global industries.  

RIs and TIs are both essential for a functional and efficient European R&I System. Complementing 
RIs, TIs are used by industry to develop, test and upscale technology to advance from validation in 
a laboratory up to higher TRLs prior to competitive market entry. Technology infrastructures are a 
key  element  in  the  development  of  local  and  regional  innovation  ecosystems,  alongside  civil 
society,  universities,  RIs,  RTOs,  industry  and  SMEs.  Beyond  the  regional  and  local  aspect,  pan-
European networks of technology infrastructures, offering bundled services for specific technology 
domains, will help increase innovation cohesion in Europe. 

The role of technology infrastructures as accelerators in the “lab’ to fab’” process was outlined in 
the  Staff  Working  Document  on  technology  infrastructures.154  TIs  are,  therein,  understood  as 
“facilities,  equipment,  capabilities  and  support  services  required  to  develop,  test  and  upscale 
technology  to  advance  from  validation  in  a  laboratory  up  to  higher  TRLs  prior  to  competitive 
market entry. They can have public, semi-public or private status. Their users are mainly industrial 
players,  including  SMEs,  which  seek  support  to  develop  and  integrate  innovative  technologies 
towards commercialisation of new products, processes and services, whilst ensuring feasibility and 
regulatory compliance”. 

At the same time, “research infrastructures” means facilities, resources and related services that are 
used by the scientific community to conduct research in their respective fields and covers scientific 
equipment  or  set  of  instruments,  knowledge-based  resources  such  as  collections,  archives  or 
structured  scientific  information,  enabling  information  and  communication  technology-based 
infrastructures  such  as  grid,  computing,  software  and  communication,  or  any  other  entity  of  a 
unique  nature  essential  to  conduct  research.  Such  infrastructures  may  be  'single-sited'  or 
'distributed' (an organised network of resources).  

In the broader context of the European research infrastructures landscape, RIs and TIs each have 
their  own  specificities  and  both  are  important  components in  a  well-functioning  R&I  system.  As 
underlined in the JRC Policy Brief155, there is a continuum between RIs and TIs, and they often are 
complementary:  RIs  create  new  scientific  knowledge,  which  is  often  used  by  TIs  to  address  the 
future needs of European society and industry. To be able to achieve the ambitious targets of the 
twin transitions, research actors, industry and SMEs in Europe need access to both, world-class RIs 

153 SWD(2019)158 final, European Commission Staff Working Document  on Technology Infrastructures; COM(2020) 628 
final,  European  Commission  Communication  A  new  ERA  for  Research  and  Innovation;  EARTO  (2020),  EARTO  paper: 
Setting-up a European Strategy for Technology Infrastructures; Council conclusions of future ERA Governance 14308/21. 
154 SWD(2019)158 final. 
155  Taucer,  F.,  Grande,  S.,  Kert,  K.  and  Jenet,  A.  (2021),  Towards  the  Implementation  of  an  EU  Strategy  for  Technology 
Infrastructures, European Commission, Brussels, JRC127798. 

46 

 
 
                                                 
and TIs, which are integrated at EU, national and regional levels.  

In  the  Implementation  of  an  EU  Strategy  for  Technology  Infrastructures  Report156,  the  analysis 
shows  that  TIs  are  mostly  created,  managed,  maintained  and  upgraded  by  Research  and 
Technology  Organisations  (RTOs)  and  Technical  Universities.  Hosting  such  high-class,  well-
functioning  TI  requires  dedicated  and  significant  resources  from  organisations,  as  well  as 
interdisciplinary  and  complex  technological  competences  and  thirdly,  complementary  non-
technological expertise and highly skilled staff to operate them and to develop their services. TIs 
are open to a wide range of public and private users such as industry and SMEs collaborating with 
TIs  to  jointly  develop  and  integrate  innovative  technologies  into  new  products,  processes,  and 
services. 

Figure  29.  Industry-relevant  specialisation  nodes  and  their  share  of  regional 
employment 

Source:  European  Cluster  Panorama  2021  Leveraging  clusters  for  resilient,  green  and  digital  regional 
economies,  December  2021.  Note:  Industry-relevant  specialisation  nodes:  When  the  region  is 
specialised in the sector (or industrial ecosystem) (LQ > 1.5) and regional employment in the sector is 
relevant in the EU context (industry employment share > 1%). 

Technologies  –  especially  the  most  complex  ones  -  are  heavily  concentrated  in  a  few 
regional ecosystems. It is essential to take into account this real-world pattern and design an 
EU-wide place-based157 innovation  policy. Second, the EU  regional innovation system does 
not reflect this geography when it comes to inter-regional collaborations. This gap signals a 
poor knowledge capability matching and it could be reduced with network-based innovation 
policy tools. Finally, resilience at regional level will partly depend on the development of 
innovation  systems  and  intermediaries  that  can  encourage  diffusion  and  absorption  of 
productivity  enhancing  technologies,  as  well  as  the  ability  to  build  on  national  and 
regional capabilities to generate new knowledge. 

156 Viscido, S., Taucer, F., Grande, S. and Jenet, A., (2022), Towards the Implementation of an EU Strategy for Technology 
Infrastructures,  Publications  Office  of  the  European  Union,  Luxembourg,  ISBN  978-92-76-46490-7  (online),978-92-76-
46502-7 (print), doi:10.2760/4834 (online),10.2760/761184 (print), JRC128007. 
157 Place-based innovation policy is meant in the sense of policy that leverages regional ecosystems to generate EU global 
leadership. 

47 

 
 
 
 
                                                 
2.4 

Deep tech talents 

2.4.1 

EU international and intersectoral circulation of talents 

Europe  faces  challenges  when  it  comes  to  talent  circulation.  The  internationalisation 
policies  of  higher  education  in  Europe  in  terms  of  the  Bologna  and  Lisbon  processes  have 
boosted  both  the  mobility  within  Europe  and  migration  to  Europe,  improving  European 
competitiveness  in  higher  education  (also  due  to  enhanced  attraction  of  international 
students).158  However,  there  is  still  space  for  improvement  in  terms  of  EU attractiveness.159 
Furthermore, the decision of the UK to leave the EU might impact on the attractiveness of the 
European Research Area (ERA) as the UK has been an important  part of the EU strategy in 
attracting international researchers and PhDs.160  

Overall,  eastern  and  southern  European  countries  experience  higher  outgoing flows  of 
talents,  while  western  and  northern  European  countries  are  benefiting  from  high 
incoming flows of talents. When calculating the inflow and outflow of researchers in Europe 
during  the  last  20  years  (Figure  30)  to  and  from  the  rest  of  the  world  (intra  and  extra  EU 
mobility),  there  is  a  brain  drain  in  most  eastern  and  southern  European  countries  like  Italy, 
Greece,  Hungary  or  Poland,  with  the  outflow  of  researchers  outstripping  the  inflow.  These 
results might be explained by poor career conditions and less attractive research systems that 
led  researchers  to  look  for  better  conditions  in  other  countries.  On  the  other  hands,  in  the 
northern  and  western  European  countries  such  as  Switzerland,  Luxembourg,  Norway  or 
United Kingdom, the inflow of researchers outpaces the outflow, thus leading to a brain gain. 
The results also show that most EU countries show a ratio below 1, which means that more 
researchers  left  the  country  during  the  period  than  entered  the  country.  These  might  be 
explained  by  the  fact  that,  not  only  in  most  EU  countries,  the  United  States  are  the  top 
destination (data not shown) for European researchers, but also the outflow is higher than the 
inflow of American researchers to the EU.  

higher 

education 

158  European  Commission  (2020),  2019  Annual  Report  on  Intra-EU  Labour  Mobility  (Link);  De  Wit,  H. (2012), Student 
mobility between Europe and the rest of the world: Trends, issues and challenges. In A. Curaj, P. Scott, L. Vlasceanu, & L. 
Teichler, 
Wilson (Eds.), European 
U. (2009), Internationalisation of higher education: European experiences, Asia Pacific Education Review, 10(1), 93–106. 
159  Khan,  J.  (2021),  European  academic  brain  drain:  A  meta‐synthesis,  European  Journal  of  Education, 56(2),  265-278;  
PPMI, IDEA Consult and WIFO (2021),  MORE4 study: Support data collection and analysis concerning mobility patterns 
and  career  paths of  researchers,  European  Commission;    Grigolo,  M., Lietaert,  M.,  & Marimon, R. (2010), ‘Shifting  from 
academic  “brain  drain” 
  Ackers, 
L. (2008), ‘Internationalisation, mobility and metrics: A new form of indirect discrimination?’ Minerva, 46(4), pp. 411–435. 
160 Courtois, A., Veiga, A. (2020), ‘Brexit and higher education in Europe: the role of ideas in shaping internationalisation 
strategies in times of uncertainty’, Higher Education, 79(3), pp. 811–827. 

in  Europe’, European  Political  Science, 9(1), pp.118–130; 

crossroads (pp. 431–439). 

to  “brain  gain” 

Springer; 

the 

at 

48 

 
 
                                                 
Figure  30.  Map  with  the  ratio  between  inflow  and  outflow  of  researchers  during  the 
period 2001-2020 by country 

Source:  DG  Research  and  Innovation  -  Common  R&I  Strategy  and  Foresight  Service  -  Chief  Economist  Unit 
based on data provided by Science-Metrix under a contract with DG Research and Innovation 

Note:  (1)  To  investigate  the  mobility  of  individual  researchers,  Scopus  author  IDs  (AUIDs)  were  selected  as 
unique identifiers for individual researchers. AUIDs are generally quite precise and allow for the identification 
of  sets  of  publications  related  to  unique  researchers.  One  drawback  is  that  it  is  not  as  precise  for  common 
names,  which  mostly  affects  Chinese  and  Korean  researchers,  as  well  as  researchers  with  highly  frequent 
English names. In addition, because an AUID relies partially on institutional affiliations, mobility may cause a 
rupture  in  the  portfolio  of  publications  of  researchers,  resulting  again  in  a  split  of  the  output  between  the 
original AUID and a new distinct AUID assigned after moving, again impacting the measurement of mobility. 
Therefore, the indicator will tend to underestimate mobility because of the aforementioned issues. (2)RO: period 
corresponds to 2001-2019. 

The main elements found to pull talents outside of the EU are lower salaries if compared 
to US and Japan and the lack of fair recruitment processes, particularly in southern European 
countries.161  In  the  last  study  provided  by  PPMI,  IDEA  Consult  and  WIFO  (2021)162,  it  is 

161  Mendoza,  C., Staniscia,  B.,  & Ortiz,  A. (2020),  ‘“Knowledge  migrants”  or  “economic  migrants”?  Patterns  of  academic 
mobility  and  migration  from  southern  Europe  to  Mexico’, Population,  Space  and  Place, 26(2), pp.  1–11;  Ackers, 
L. (2008), ‘Internationalisation, mobility and metrics: A new form of indirect discrimination?’ Minerva, 46(4), pp. 411–435; 
Musselin, C. (2004), ‘Towards a European academic labour market? Some lessons drawn from empirical studies on academic 
mobility’, Higher  Education, 48(1), pp.  55–78;    Morano-Foadi,  S. (2006),  ‘Key  issues  and  causes  of  the  Italian  brain 
drain’, Innovation:  The  European  Journal  of  Social  Science  Research, 19(2), pp.  209–223;    Grigolo,  M., Lietaert,  M., 
& Marimon,  R. (2010), ‘Shifting  from  academic  “brain  drain” 
in  Europe’, European  Political 
Science, 9(1), pp.118–130. 

to  “brain  gain” 

49 

 
 
 
 
 
 
                                                 
found  that  “international  networking”,  “working  with  leading  scientists”,  “quality  of 
education  and  training”,  “research  autonomy”,  “availability  of  appropriate  funding”  and 
“suitable positions” are the more important determinant of PhD mobility. On the other hand, 
the EU is found as attractive for its social security and retirement systems.  

Figure 31. Perceptions of remuneration by country 

Source: MORE4 EU HE survey (2019) 

University-industry  collaboration  is  a  crucial  channel  for  the  production  and  diffusion 
of  knowledge  between  universities  and  firms.  It  most  commonly  takes  place  in  close 
geographical  proximity.163  Firms’  decision  to  collaborate  with  universities,  research 
performing organisations and research and technology organisations is driven by the strategic 
decision of the firm to develop its innovation process. Furthermore, firm characteristics such 
as  R&D  intensity,  firm  size  and  human  capital  determine  the  propensity  of  firms  to 
collaborate  with  universities  and  other  research  performing  organisations.164  Within  the  EU 
R&I  Framework  Programme  projects,  70%  of  innovations  with  high  potential  are  co-
developed with  universities.165  In this context,  collaboration between universities and SMEs 
seems to be particularly fruitful: considering that universities often report that what they most 
need in  order to  bring their innovation  to  the market  is  "partnership with other companies", 

162 PPMI, IDEA Consult and WIFO (2021) MORE4 study: Support data collection and analysis concerning mobility patterns 
and career paths of researchers, European Commission (Link). 

163  Acs,  Z.J.,  Audretsch, D.B., Feldman,  M.P.  (1994),  ‘R&D  spillovers  and  recipient  firm  size’,  Rev.  Econ.  Stat.,  pp. 336-
340; Piergiovanni, R.,  Santarelli,  E.,  (2001),  ‘Patents  and  the  geographic  localization  of  R&D  spillovers  in  French 
manufacturing’,  Reg.  Stud., 35 (8),  pp. 697-702;   Zucker,  L.G., Darby, M.R.,  Furner, J.,   Liu, C., Ma,   H.  (2007),  ‘Minerva 
unbound: knowledge stocks, knowledge flows and new knowledge production’, Research Policy, 36(6), pp. 850-863. 
164 Fitjar, R.D., Rodríguez-Pose, A. (2017), ‘Nothing is in the air’, Growth Change, 48 (1), pp. 22-39; Atta-Owusu, K., Fitjar, 
R.  D.,  &  Rodríguez-Pose,  A.  (2021),  ‘What  drives  university-industry  collaboration?  Research  excellence  or  firm 
collaboration  strategy?’. Technological  Forecasting  and  Social  Change, 173,  121084;  Garcia-Quevedo, J., Mas-Verdú, F., 
the  demand’,  Higher 
& Polo-Otero, J. (2012), ‘Which  firms  want  PhDs?  An  analysis  of 
Education, 63(5), 607–620;   Maietta,  O.W. (2015),  ‘Determinants  of  university–firm  R&D  collaboration  and  its  impact  on 
innovation: a perspective from a low-tech industry’, Research Policy, 44 (7), pp. 1341-1359. 
165  JRC.  Pesole,  A.,  Nepelski  D.  (2016),  Universities  and  Collaborative  Innovation  in  EC-funded  Research  Projects:  An 
Analysis based on Innovation Radar Data, JRC104870. 

the  determinants  of 

50 

 
 
 
                                                                                                                                                         
one  can  conclude  that  universities  are  seeking  complementary  capabilities,  to  help  them 
commercialise  their  technologies.  These  capabilities  can  be  brought  in  by  private 
organisations, often SMEs participating to the EU Framework Programme projects. 

Between  2010  and  2020,  the  share  of  public-private  co-authored  scientific  publications 
increased from 8.5% to 9.1% in the EU.  Within the EU, there are significant differences 
across the Member States. On one side, Austria, with a share of 14.7%, is the top performer, 
not only within the EU, but also among all countries selected. On the other side, Poland, with 
a  share  of  4.9%,  is  the  least  performing  country  in  the  EU.  Countries  with  higher  business 
R&D expenditure tend to have a higher share of public-private co-publications, since, in many 
cases, enterprises contract public research performing organisation and research and no-profit 
technology  organisations  to  perform  research,  leading  to  more  scientific  publications.  This 
research is then applied by the enterprises to develop new products or processes. 

Figure  32.  Share  of  public-private  co-authored  scientific  publications  in  total  scientific 
publications, 2010 and 2020 

Source: Science, Research and Innovation Performance of the EU 2022. Data from Science-Metrix 

At  EU  level,  the  share  of  job-to-job  mobility  has  increased  from  around  6%  to  7% 
between  2010  and  2020.  Within  the  EU,  there  are  significant  differences  in  the  mobility 
patterns of human resources in science and technology, as can be seen in Figure 33. With the 
exception of Czechia, Sweden and Romania, all other Member States had an increase in job-
to-job  mobility  in  the  last  ten  years.  Mobility  increased  the  most  in  Estonia,  Croatia  and 
Hungary. Despite the increase in the ten-year period, there was a decline between 2019 and 
2020  for  the  majority  of  the  Member  States  and  other  European  countries,  in  particular 
Sweden and Portugal. This drop can also be explained by the Covid-19 pandemic that led to 
people preferring to remain in their current jobs, rather than moving; and to less job openings.  

51 

 
 
 
 
 
Figure  33.  Job-to-job  mobility(1)  of  human  resources  in  science  and  technology 
(HRST)(2)  as % of total HRST, 2010, 2019 and 2020 

Source:  Science,  Research  and  Innovation  Performance  of  the  EU  2022.  Data:  Eurostat  (online  data  code: 
hrst_fl_mobsex). Notes: (1) The movement of individuals between one job and another from one year to the next. It does not 
include  inflows  into  the  labour  market  from  a  situation  of  unemployment  or  inactivity.  (2)HRST:  Persons  with  tertiary 
education and / or employed in science and technology. (3)No data available for UK in 2020. (4)Figures for Ireland are not 
available.  

University  licensing,  patenting  and  start-up  creation  is  rising  in  many  countries  in 
Europe  and  Asia,  as  well  as  in  the  USA,  Australia,  Canada  and  Israel.166  These 
commercialization activities are called ‘academic entrepreneurship’. However, universities 
face  still  today  different  issues  in  commercialising  their  research.167  As  an  example, 
technologies developed in university labs are typically more embryonic than their industrial 
lab counterparts, making them harder to commercialise, and requiring venture capital/business 
angels.168  Universities  are  now  required 
their 
organisational  outlook  and  in  their  offerings,  as  well  as  to  facilitate  economic  development 
and  societal  impact,  including  at  territorial  level,  often  inspired  by  regional  smart 
specialisation  strategies169.  Scientific  teams  with  exposure  to  peers  who  have  experience  in 
commercialising  science  can  substantially 
in 
entrepreneurship  due  to  awareness,  demonstration  effects,  professional  legitimization,  and 
experience  with  commercialisation.170  Research  team  composition  and  social  networks  can 
affect entrepreneurial opportunity and commercialization outcomes.171 

to  become  more  entrepreneurial 

the  propensity  of  engaging 

increase 

in 

166  Grimaldi,  R.,  M.  Kenney,  D.  S.  Siegel  and  M.  Wright  (2011),  ‘30  years  after  Bayh–Dole:  reassessing  academic 
entrepreneurship’, Research Policy, 40, pp. 1045–1057. 
167 Siegel, D. S. and M. Wright (2015), ‘University technology transfer offices, licensing, and start-ups’. In A. N. Link, D. S. 
Siegel and M. Wright (eds), Chicago Handbook of University Technology Transfer and Academic Entrepreneurship, pp. 1–
40.  Chicago,  IL:  University  of  Chicago Press;  Siegel,  D.  S.,  & Wright,  M.  (2015),  Academic  entrepreneurship:  time  for  a 
rethink?. British journal of management, 26(4), 582-595. 
168  Jensen,  R.,  &  Thursby,  M.  (2001),  ‘Proofs  and  prototypes  for  sale:  The  licensing  of  university  inventions’, American 
Economic Review, 91(1), 240-259. 
169 European Commission, Joint Research Centre (2021), Higher Education for Smart Specialisation, A Handbook. 
170  Stuart,  T.  E.,  Ding,  W.  W.  (2006),  ‘When  do  scientists  become  entrepreneurs?  The  social  structural  antecedents  of 
commercial activity in the academic life sciences’, American journal of sociology, 112(1), pp. 97-144. 
171  Baron,  R.A.  (2006),  ‘Opportunity  recognition  as  pattern  recognition:  How  entrepreneurs  “connect  the  dots”  to  identify 
new business opportunities’, Academy of management perspectives, 20(1), pp. 104-119. 

52 

 
 
                                                 
At  the  same  time,  there  is  a  need  for  research  results  to  circulate  more  rapidly  and 
widely within society. This has become clear during the COVID-19 pandemic. On this front, 
the Commission encourages (and requires under Horizon Europe) the use of open licenses for 
all scientific research publications about research findings that do not require IPR protection 
and are peer-reviewed. In addition, university staff are increasingly required to be acquainted 
with  open  licenses  and  understand  the  benefits  of  open  research,  open  data  and  open 
education for human capital and skills development, and societal innovation.172 

2.4.2 

EU investment in talent and EU labour market trends 

General government expenditure on education (% of GDP) has slightly decreased from 
2010 to 2019. Sweden, Denmark and Belgium have the highest spending figures in the EU, 
while Ireland, Romania and Italy spend the least. On average, governments spend about 5% of 
GDP  on  education  in  the  EU.  Sweden,  Belgium,  Norway,  Czechia,  Bulgaria  and  Romania 
have increased their spending on education  

Figure 34. General government expenditure in education (% of GDP) 

Source: Science, Research and Innovation Performance of the EU 2022. Eurostat. Online data code: GOV_10A_EXP 

Private expenditures on education are relatively low in most EU countries, especially as 
regards tertiary education. Most of the expenditure on education in the EU comes from the 
public  sector,  while  other  countries  (particularly  the  US  and  UK)  have  a  more  significant 
private contribution. The EU22 is the entity with the higher public expenditure (% GDP) on 
tertiary  education.  However,  overall,  the  United  States  is  the  country  with  the  highest  total 
expenditure (% GDP) on tertiary education, followed by the United Kingdom (see Figure 35). 
In  the  US,  UK,  Japan  and  South  Korea  private  contributions  account  for  the  majority  of 
tertiary  education  spending.  The  US  public  expenditure  on  tertiary  education  accounts  for 

172 Related factsheets: http://openaire.eu/ec-policies-and-mandates; Inamorato dos Santos, A. (2019), Practical Guidelines on 
Open Education for Academics: modernising higher education via open educational practices, European Commission, Joint 
Research  Centre;  COMM  (2013)  Opening  up  Education:  Innovative  Teaching  and  Learning  for  All  through  New 
technologies and Open Educational Resources. 

53 

 
 
                                                 
0.9%  of  its  GDP,  while  in  the  EU  it  accounts  for  1%.  At  the  same  time,  the  US  private 
expenditure  on  tertiary  education  accounts  for  1.6%  of  its  GDP,  while  in  the  EU  it  is  only 
0.2%.   

Figure 35. Expenditure in tertiary education (% GDP) 

Source:  Science,  Research  and  Innovation  Performance  of  the  EU  2022.  Education  at  Glance  2021,  OECD 
Indicators. Note: For the US figures are for net student loans rather than gross, thereby underestimating public 
transfers. Data refers to 2018. EU22 includes Austria, Belgium, Czechia, Denmark, Estonia, Finland, France, 
Germany,  Greece,  Hungary,  Ireland,  Italy,  Latvia,  Lithuania,  Luxembourg,  Netherlands,  Poland,  Portugal, 
Slovakia, Slovenia, Spain and Sweden. 

The  influence  of  the  digital  transition  is  clearly  observable  in  the  tertiary  graduates’ 
trend,  with  degrees  in  ICT  being  the  ones  showing  the  highest  growth  from  2017  to  2019 
(Figure  36).  The  share  of  ICT  graduates  has  grown  from  2017  to  2019  by  11.4%.  This  is 
likely related with job market demands. Indeed, ICT is the second most requested competence 
in the job market, with 25% of job postings mentioning ICT among the desired competences. 
Despite such remarkable increase, the current growth in number of ICT specialists is far from 
enough  to  reach  the  target  of  20  million  by  2030173.  The  shortage  of  ICT  experts  leads  to 
delays  in  developing  new  products  and  services,  hampering  innovation  and  growth  in  all 
industrial ecosystems, far beyond the ICT sector. In level, “business, administration and law” 
stays the most common  degree, with  a share of  24%. “Business, administration and law” is 
also the first most requested competence in the job market. “Engineering, manufacturing and 
construction”  is  the  third  most  common  degree,  with  a  share  of  15%.  The  share  of  tertiary 
graduates in “arts and humanities” and “education” degrees have been declining. 

173 SWD(2021) 247 final. 

54 

 
 
 
                                                 
Figure 36. Share of tertiary graduates by field of study (EU) 

Source: Science, Research and Innovation Performance of the EU 2022. DG Research and Innovation based on 
Eurostat. Online data code: EDUC_UOE_GRAD03. Note: Percentage of tertiary education graduates by field of 
study. Growth rate from 2017 to 2019 of the percentage of graduates of a field out of the total graduates. As an 
example, ICT graduates increased from 3.5% to 3.9%, implying a growth rate of 11.4% from 2017 to 2019.   

PhDs  and  doctoral  students  are  newest  form  of  resource  in  a  world  driven  by 
knowledge-based  economies.174  The  recruitment  of  doctoral  graduates  leads  to  collective 
knowledge, skills, networking, and prestige benefits to the firms that decide to make doctoral 
graduates  an  asset  of  their  organisation.175  Doctorate  holders  have  a  determinant  role  in 
building relationships between universities and businesses that enable knowledge sharing, and 
more  innovative  firms  tend  to  recruit  more  PhDs.176  Based  on  Eurostat  data,  the  number  of 
researchers in the EU increased nearly by one-quarter (22.6 %) between 2008 and 2018, from 
1.27  to  1.79  million.  More  than  half  (54.9 %)  of  researchers  in  the  EU  worked  in  business 
enterprises,  33 %  in  higher  education  and  11.3 %  in  government  sector  in  2018,  with 
increasing trend (Figure 37). 

174  Neumann, R., Tan, K.K. (2011), ‘From  PhD  to  initial  employment:  The  doctorate  in  a  knowledge  economy’, Studies  in 
Higher  Education, 36(5), pp.  601–614;  Temple, P. (2012), Universities  in  the  knowledge  economy:  Higher  education 
organisation  and  global  change, London: Routledge;  Bryan,  B.,  Guccione,  K.  (2018),  ‘Was  it  worth  it?  A  qualitative 
exploration into graduate perceptions of doctoral value’, Higher Education Research & Development, 37(6), pp. 1124-1140. 
175  Diamond, A., Ball, C., Vorley, T., Hughes, T., Moreton, R., Howe, P.,& Nathwani, T. (2014), The  impact  of  doctoral 
careers, Leicester: CFE Research. 
176  Garcia-Quevedo, J., Mas-Verdú, F., Polo-Otero, J. (2012), ‘Which  firms  want  PhDs?  An  analysis  of  the determinants  of 
the demand’, Higher Education, 63(5), pp. 607–620. 

55 

 
 
                                                 
Figure 37. Researchers per million inhabitants (FTE) 

Source: Science, Research and Innovation Performance of the EU 2022. UNESCO data. Note: Units refer to full 
time equivalent. EU average is computed (as unweighted average between researchers per million inhabitants 
across all available member states) by DG Research and Innovation. 

The share of researchers in the workforce is increasing in the EU, though there is a strong 
variation  across  EU  countries.  The  share  of  R&D  personnel  and  researchers  increased  from 
1.1%  to  1.4%  of  the  labour  force  in  the  EU  (see  Figure  38).  In  2020,  countries  with  the 
highest share of researchers are Denmark, Belgium, Finland and Norway, while nations with 
the  lowest  share  are  Romania,  Cyprus,  Malta  and  Latvia.  In  the  EU,  the  majority  of 
researchers  and  R&D  personnel  works  for  businesses,  followed  by  the  higher  education 
sector,  the  government  and  the  private  non-profit  sector.  The  business  sector  accounts  for 
more  than  double  the  number  of  researchers  and  R&D  personnel  of  the  higher  education 
sector, and more than four times the numbers of the government sector. Furthermore, in the 
last 10  years, the private sector is  the one that increased the most its number of researchers 
and R&D personnel, growing from about 1.3 million employees (in full time equivalents) in 
2013 to almost 1,8 million in 2020.  

56 

 
 
Figure 38. Share of R&D personnel and researchers in the labour force 

Source:  Science,  Research  and  Innovation  Performance  of  the  EU  2022.  Eurostat.  Online  data  code: 
RD_P_PERSLF.  Note:  Share  of  R&D  personnel  and  researchers  (full  time  equivalent)  is  measured  respect  to 
the labour force, across all sectors. 

Despite  the  fact  that  in  the  EU  more  than  half  of  tertiary  graduates  are  women,  there 
are  still  strong  gender  differences  in  study  fields  chosen.  Degrees  in  engineering, 
manufacturing and construction and in ICT are predominantly chosen by males, while female 
students  are overrepresented in  art  and humanities, health  and welfare,  as well as  education 
degrees (see Figure 39). Male graduates in  ICT are around three times more numerous than 
females,  and  the  same  holds  for  graduates  in  engineering,  manufacturing  and  construction. 
Female  graduates  in  arts  and  humanities  are  double  the  male  graduates,  while  women 
graduates in education are more than three times the male graduates in the field. 

57 

 
 
Figure 39. Tertiary graduates by field of study and gender (EU) 

Source:  Science,  Research  and  Innovation  Performance  of  the  EU  2022.  Eurostat.  Online  data  code: 
EDUC_UOE_GRAD03. Note: Percentage of tertiary education graduates by field of study and gender in 2019. 

Even  though  the  share  of  women  starting  a  business  has  been  increasing  in  the  last 
decades, the rate of entrepreneurship is still higher for men than for women.  In the EU 
the  women  entrepreneurship  rate  is  half  of  the  men  one  (Figure  40).  Despite  wide 
heterogeneity  on  the  rate  of  self-employment  across  EU  countries,  such  inequality  is 
consistently present in all member states.  

58 

 
 
Figure 40. Female entrepreneurship rate across EU Member States, 2020 

Source: Science, Research and Innovation Performance of the EU 2022. Eurostat. The entrepreneurship rate is 
measured as number of self-employed women as proportion of total active population aged 15 to 64. 

In  the  European  Union  the  proportion  of  high-skilled  occupations  increased,  the 
proportion  of  middle-skilled  occupations  decreased,  and  the  proportion  of  low-skilled 
occupations remained steady over the last two decades (Figure 41).  In the EU, the share of 
high-skilled occupations (out of total employment) increased by 7 percentage points between 
2002 and 2020, growing from 37% to 44%, especially in market services. The share of low-
skilled  occupations  remained  steady  at  around  10%.  On  the  contrary,  the  share  of  middle-
skilled occupations plummeted by around 6 percentage points, from 53% in 2002 to 47% in 
2020. 

59 

 
 
Figure 41. Structural changes in skills requirements (EU) 

Source:  Science,  Research  and  Innovation  Performance  of  the  EU  2022  based  on  Eurostat  data.  Online  data 
code: LFSA_EGISED.  Note:  Following  the  ILO  (2007)  methodology,  high-skilled  occupations  include  jobs 
classified under the ISCO-08 1-digit codes 1, 2, and 3. Middle-skilled occupations include jobs classified under 
the major groups 4, 5, 6, 7, 8. Low-skilled occupations include jobs classified under the groups 9. Data refer to 
the EU. 

Analysis  by  Cedefop  of  online  job  vacancies  suggests  that  social  and  digital  skills, 
combined  with  managerial  and  analytical  competences  are  among  the  most  frequently 
requested  in  the  EU.  Cedefop  collected  millions  of  online  job  advertisements177  in  27 
European  countries  from  thousands  of  sources,  including  private  job  portals,  public 
employment service portals, recruitment agencies, online newspapers and corporate websites 
over the period 2020Q3-2021Q2. 

The more requested skills are on one side the ability to communicate, working in teams, 
collaborating and being creative, and on the other side the capacity to effectively work 
with computers. Around 34% of online jobs posted in the EU (from 2020 to 2021) mention 
communication,  collaboration  and  creativity  skills,  28%  mention  computer  skills  and  20% 
mention  management  skills  (Figure  42).  Such  trends  are  in  line  with  our  above-mentioned 
findings  on structural  changes in  skills  requirements  triggered by the digital  transformation: 
the  diffusion  of  digital  and  automation  technologies  increases  demand  not  only  for  digital 
skills but also for complementary abstract thinking and social skills. The least requested skills 
are constructing (0.98%), working with machinery (1.55%) and handling and moving (1.8%). 

177  Online  job  advertisements  tend  to  relatively  over-represent  white-collar  (mostly  professional)  occupations  and  their 
attendant skills, compared to manual ones, in terms of the occupational structure. 

60 

 
 
 
                                                 
Figure 42. Percentage of skills type total mention (EU) 

Source:  Science,  Research  and  Innovation  Performance  of  the  EU  2022.  Cedefop,  Skills-OVATE.  The  image 
represents the share of total mentions of skills (skills ranking) in millions of online job advertisements (OJAs) in 
27 European countries, collected from thousands of sources, including private job portals, public employment 
service portals, recruitment agencies, online newspapers and corporate websites. Period: Q3 2020 – Q2 2021. 

The more requested knowledge domains are business, law and ICT, closely followed by 
engineering.  Around  34%  of  online  job  posted  in  the  EU  from  2020  to  2021  mention 
business,  administration  and  law,  25%  mention  ICT  competences  and  15%  mention 
engineering,  manufacturing  and  construction  knowledge  (see  Figure  43).  A  relatively  high 
proportion  of  vacancies  (14%)  includes  only  generic  qualification  requirements.  The  high 
demand for ICT-related knowledge suggests that ICT skills are not being required exclusively 
in the science and technology sector, but across the entire economy.  

61 

 
 
Figure 43. Percentage of knowledge type total mention (EU) 

Source:  Science,  Research  and  Innovation  Performance  of  the  EU  2022.  Cedefop,  Skills-OVATE.  The  image 
represents the share of total mentions of knowledge (knowledge ranking) in millions of online job advertisements 
(OJAs)  in  27  European  countries,  collected  from  thousands  of  sources,  including  private  job  portals,  public 
employment  service  portals,  recruitment  agencies,  online  newspapers  and  corporate  websites.  Period:  Q3 
2020 – Q2 2021. 

Given  the  rising  importance  of  digital  skills  in  the  work  environment,  more  and  more 
firms are training their personnel in ICT skills. Between 2012 and 2019 the percentage of 
EU firms that provided ICT training to their employees has increased by 5 percentages points, 
growing from 18% to 23%, equivalent to a growth rate of 28% (Figure 44). The country that 
has trained its workers the most is Norway, with around 44% of enterprises that provided ICT 
training,  followed  by  Finland,  Belgium,  Austria  and  the  UK.  The  country  that  engaged  the 
least  in  such training provision is  Romania with  only 6% of enterprises  upgrading workers’ 
ICT  skills.  Adequate  investments  should  be  made  in  education  and  skills  for  adults.  The 
lengthening of working lives in today’s knowledge economy requires a paradigm shift where 
individuals dedicate themselves to long-life learning. 

62 

 
 
Figure 44. Enterprises that provided training to upgrade ICT skills of their personnel 

Source:  Science,  Research  and  Innovation  Performance  of  the  EU  2022.  Eurostat.  Enterprises  that  provided 
training to develop/upgrade ICT skills of their personnel. Online data code: ISOC_SKE_ITTN2. Percentage of 
enterprises. 

2.5 

Data Informed Policy and Policy Support 

2.5.1  Data and monitoring for innovation policy 

Several tools are currently being used at the EU level to monitor innovation activities in 
Europe and support innovation policy design and policymaking. The main tools include most 
notably  the  European  Innovation  Scoreboard,  the  Regional  Innovation  Scoreboard  and  the 
Innovation  Output  Indicator.  The  Community  Innovation  Survey,  published  by  Eurostat,  is 
the  reference  survey  on  innovation  in  enterprises  and  provides  statistics  on  innovation  in 
Europe, based on the methodology defined in the Oslo Manual. The European Eco-innovation 
scoreboard  also  provides  a  comparative  analysis  of  the  performance  in  the  environmental 
innovation in EU countries 

The European Innovation Scoreboard (EIS) provides a comparative analysis of innovation 
performance in EU countries, other European countries, and regional neighbours. Based on a 
composite  indicator,  the  Summary  Innovation  Index,  Member  States  fall  into  four 
performance groups: innovation leaders, strong innovators, moderate innovators and emerging 
innovators (see also Box 4). The scoreboard helps the Member States to assess areas in which 
they  need  to  strengthen  their  efforts  to  improve  performance.  The  European  Innovation 
Scoreboard  is  used  as  a  reference  to  check  the  eligibility  of  applicants  under  the  Regional 
Innovation Scheme (RIS) of the European Institute of Innovation and Technology (EIT) and 
its  KICs.  This  scheme  aims  indeed  to  reinforce  the  innovation  capacity  of  applicants  from 
countries  that  have  an  emerging  or  moderate  innovation  performance  according  to  the  EIS 
and, furthermore, acts as an entry point to the EIT’s ecosystem by widening participation in 
the KICs’ activities.  

Box 4. The European Innovation Scoreboard 

The first edition of the EIS was published in 2001, and since then it is published annually. Over time 
the  measurement  framework  has  been  revised several  times,  with the latest  major  revision in  2021, 

63 

 
 
which addressed methodological issues and ensured that increasingly important phenomena, such as 
digitalisation and environmental sustainability, are adequately reflected. 

The  EIS  2021  measurement  framework  distinguishes  between  four  main  types  of  activities 
(Framework  conditions,  Investments,  Innovation  activities  and  Impacts),  capturing  12  innovation 
dimensions and in total 32 different indicators, of which 10 new and 3 revised. Additional indicators 
were introduced for the set of contextual indicators, which are used to help in the interpretation of the 
performance differences between the innovation indicators of the main measurement framework. 

Based  on  their  average  performance  scores  as  calculated  by  a  composite  indicator,  the  Summary 
Innovation Index, Member States fall into four different performance groups: 

Innovation Leaders: all Member States where performance is above 125% of the EU 

 
  Strong Innovators: all Member States with a performance between 100% and 125% of the EU 
  Moderate Innovators: all Member States where performance is between 70% and 100% of the 

EU 

  Emerging Innovators: all Member States where performance is below 70% of the EU 

Figure 45. EIS 2021 measurement framework 

The  Regional  Innovation  Scoreboard  (RIS)  accompanies  the  EIS  every  two  years  and 
provides a comparative assessment of performance of innovation systems across 240 regions 
of 22 EU Member States, Norway, Serbia, Switzerland, and the United Kingdom. In addition, 
Cyprus, Estonia, Latvia, Luxembourg, and Malta are included at the country level, as in these 
countries  NUTS  1  and  NUTS  2  levels  are  identical  to  the  country  territory.  The  RIS  2021 
followed  the  revised  methodology  of  the  EIS  2021  and  used  data  for  the  21  of  the  32  EIS 
indicators, for which data at regional level was available. 

The  Innovation  Output  Indicator  (IOI)  (see  Box  5)  aims  to  support  policymakers  by 
offering an output-oriented measure of innovation performance at the country and EU levels, 
which is directed at capturing countries’ capacity to derive economic benefits from innovation 

64 

 
 
  
 
 
the  dynamism  of 

and 
innovative  entrepreneurial  activities.  It  complements  other 
benchmarking  tools,  such  as  the  R&D  spending  targets  and  the  European  Innovation 
Scoreboard.  The  IOI  was  introduced  in  the  2013  Communication  and  Staff  Working 
Document178  and refined in 2014, 2016 and 2017 Methodology Reports179. The Commission 
is currently in the process of further revising and updating the methodological development of 
the  index  to  improve  its  statistical  properties,  capture  the  latest  developments  in  countries’ 
economic  systems  and  innovation  processes  and  align  it  with  the  new  priorities  set  by  the 
organisation.  

Box 5. The Innovation Output Indicator framework 

The 2021 edition of the IOI includes four components. The first component, referred to as ‘PCT’, is 
given by the number of patent applications per billion GDP falling under the legal framework of the 
Patent Cooperation Treaty (PCT). The second component, ‘KIABI’, measures the number of persons 
employed in knowledge-intensive business industries within total employment. It aims to capture the 
structural  orientation  of  the  business  economy  towards  knowledge-intensive  activities.  The  third 
component, ‘COMP’, aims to capture the competitiveness of knowledge-intensive goods and services 
in the export markets. It is built by integrating in equal weights the share of high-tech and medium-
tech product exports to the total product exports (GOOD) and knowledge-intensive service exports as 
a share of the total services exports of a country (SERV). Finally, the last component, referred to as 
‘DYN’, measures the employment dynamism in fast-growing180 enterprises in innovative sectors. 

An important source of information and data concerning innovation is the Community 
Innovation  Survey  (CIS),  published  every  two  years  by  Eurostat  and  carried  out  by  EU 
Member States, EFTA countries and candidate countries. In short, the CIS is a survey about 
innovation activities in enterprises, and it is designed to capture the information on different 
types  of  innovation,  to  enable  analysis  of  innovation  drivers  or  to  assess  the  innovation 
outcomes.  The  CIS  provides  various  innovation  indicators  by  three  main  breakdown 
variables: type of innovator, economic activity and size class of enterprises. For each survey 
round,  Eurostat  together  with  the  countries  develops  a  standard  core  questionnaire  – 

178 COM(2013)624 and SWD(2013)325, Measuring innovation output in Europe: towards a new indicator. 
179 See  Vértesy, D. and Tarantola, S. (2014),  The Innovation Output Indicator 2014. Methodology Report, JRC Technical 
Reports, EUR 26936, Luxembourg: Publications Office of the European Union; Vértesy, D. Deiss, R. (2016), The Innovation 
Output Indicator 2016. Methodology Update, JRC Technical Reports, EUR 27880, Luxembourg: Publications Office of the 
European Union; Vértesy, D. (2017), The Innovation Output Indicator 2017. Methodology Update, JRC Technical Reports, 
EUR 28876, Luxembourg: Publications Office of the European Union. 
180 High-growth is defined by annual average employment growth of 10% over three years. 

65 

 
 
 
                                                 
Harmonised  Data  Collection  (HDC)  listing  the  mandatory  and  rotational  questions  to  be 
provided  within  a  given  round.  The  standard  mandatory  questions  refer  to  number  of 
innovative enterprises, product and goods new to the market and new to the firm, innovation 
cooperation,  objectives  of  innovation,  sources  of  information  for  innovation,  hampering 
factors  for  innovation  activities,  innovation  developer,  turnover  from  innovation  and 
expenditure  on  innovation.  In  the  latest  edition,  a  set  of  new  questions  were  included: 
customization  and  co-creation,  patents  and  IRPs,  buying  technical  services,  innovative 
purchases,  using  information  channels,  organising  work  and  expectations  from  innovation. 
The target enterprise population of the survey is enterprises in the NACE categories with at 
least  10  employees.  An  enterprise  is  considered  innovative  if  during  the  reference  period  it 
introduced  successfully  a  product  or  process  innovation,  had  ongoing  innovation  activities, 
abandoned innovation activities, completed but yet introduced the innovation or was engaged 
in in-house R&D or R&D contracted out. On the other hand, a non-innovative enterprise had 
no innovation activity mentioned above whatsoever during the reference period. 

The Community Innovation Survey is based on the methodology laid down in the Oslo 
Manual.181  The  Oslo  Manual,  under  its  4th  Edition  of  2018,  is  a  joint  publication  of  the 
OECD and Eurostat and intends to provide guidelines for collecting and interpreting data on 
innovation, to facilitate international comparability and to provide a platform for research and 
experimentation  on  innovation  measurement.  In  more  detail,  the  Oslo  Manual  intends  to 
support  national  statistical  offices  and  other  producers  of  innovation  data  in  designing, 
collecting,  and  publishing  measures  of  innovation  to  meet  a  range  of  research  and  policy 
needs. As defined in the Manual, an innovation is a new or improved product or process (or 
combination thereof) that differs significantly from the unit’s previous products or processes 
and that has been made available to potential users (product) or brought into use by the unit 
(process). 

The performance of EU Member States on environmental innovations is also measured 
by  the  Eco-innovation  scoreboard  and  the  Eco-innovation  index.182  The  Eco-innovation 
Index,  a  composite  indicator  building  on  the  scoreboard,  allows  to  present  Member  States 
according  to  four  performance  groups:  eco-innovation  leaders,  average  eco-innovation 
performers, countries catching up with eco-innovation (see Box 6). 

Box 6. The European Eco-innovation scoreboard 

The  European  Eco-innovation  scoreboard  (ECO-IS)  provides  a  comparative  analysis  of  the 
performance  in  the  environmental  innovation  in  EU  countries.  The  scoreboard  helps  the  Member 
States  to  assess  areas  in  which  they  need  to  strengthen  their  efforts  to  improve  performance.  The 
European  Eco-innovation  index  helps  assessing  progress  towards  greening  industry  in  the  single 
market and on how green innovation can boost the green transition. 

Published  for  the  first  time  in  2014,  the  scoreboard  is  published  annually,  and  few  revisions  took 
place in view of improving the methodology and the relevance of the data source.  

The  scoreboard  aims  at  capturing  the  different  aspects  of  eco-innovation  by  applying  16  indicators 
grouped  into  five  thematic  areas:  eco-innovation  inputs,  eco-innovation  activities,  eco-innovation 
outputs, resource efficiency and socio-economic outcomes. 

181  OECD/Eurostat  (2018),  Oslo  Manual  2018:  Guidelines  for  Collecting,  Reporting  and  Using  Data  on  Innovation,  4th 
Edition,  The  Measurement  of  Scientific,  Technological  and  Innovation  Activities,  OECD  Publishing,  Paris/Eurostat, 
Luxembourg. 
182 https://ec.europa.eu/environment/ecoap/indicators/index_en. 

66 

 
                                                 
It  thereby  shows  how  well  individual  Member  States  perform  in  different  dimensions  of  eco-
innovation  compared  to  the  EU  average  and  presents  their  strengths  and  weaknesses.  The  Eco-IS 
complements other measurement approaches of innovativeness of EU countries and aims to promote a 
holistic view on economic, environmental and social performance. 

Based  on  their  average  performance  scores  as  calculated  by  a  composite  indicator,  the  Eco- 
Innovation Index, Member States fall into three different performance groups: 

  Eco-Innovation Leaders: all Member States where performance is above 120% of the EU; 
  Average Eco-Innovation performers: all Member States with a performance between 80% and 

120% of the EU; 

  Countries  catching  up  with  Eco-innovation:  all  Member  States  where  performance  is  above 

80% of the EU. 

Other platforms and tools provide information and data on applicants and beneficiaries 
from several innovation-related funding instruments of the Commission, at micro level. 
For  example,  the  Innovation  Radar183  initiative  identifies  high  potential  innovations  and 
innovators in EU-funded research and innovation projects. The European Innovation Council 
and  Small  and  Medium-sized  Enterprises  Executive  Agency  (EISMEA)  has  developed 
datahubs184 that provide similar data on several funding instruments.  

Despite  the  above-mentioned  initiatives,  there  is  a  growing  need  for  better  data 
collection and analysis with regards to start-ups, scale-ups and their ecosystems. Several 
stakeholder  consultation  groups  and  other  European  institutional  actors  have  expressed  this 
need in recent reports and recommendations.185 Currently, there are some existing initiatives 
by both public and private organisations tracking the development of Europe’s start-up scene 
more  broadly.  However,  due  to  the  use  of  diverging  data  and  definitions,  and  a  number  of 
different methodologies, they are often incompatible and unable to provide a clear picture on 
the European start-up landscape. This is one of the reasons the EIS currently does not include 
any  indicator  on  the  start-ups  and/or  scale-ups  despite  their  important  role  in  the  overall 
innovation ecosystem.   

Table 3. Examples of definitions from several sources 

Indicator 

Definition 

Businesses  that  are  looking  to  grow  in  terms  of  market  access, 
revenues,  and  number  of  employees,  but  are  still  in  search  of  a 
repeatable and scalable business model.  

Source 

European Investment 
Bank 

Start-up 

The  company  must  be  younger  than  ten  years.  It  must  have  an 
innovative product or business model. The start-up must aim to scale up 
(intention to grow the number of employees and/or markets operate in). 

European Startup 
Monitor 

A business entity (up to and including 10 years of operational history) 
belonging  to  a  company  headquarter  in  EU,  which  is  starting  activity 
with  the  purpose  of  developing  and  launching  an  innovative  business 
model  or  technological  component  with  high  global  growth  potential, 

Start-up Estonia based 
on European Startup 

183 https://www.innoradar.eu/. 
184 https://eismea.ec.europa.eu/eismea-datahubs_en. 
185 For example, proposals on ‘defining key terms Data taxonomy’ and ‘data collection measures’ from the “Action Plan to 
Make  Europe  the  new  Global  Powerhouse  for  Start-ups”,  as  well  as  the  proposal  for  a  ‘tracking  platform  to  make  sure 
female-founded companies are being supported’ from the “Invest in Women NOW” petition. 

67 

 
 
 
   
 
                                                 
that is innovative and has the potential to significantly contribute to the 
development of the EU business environment. 

Network 

High  growth  start-ups  -  start-ups  that  reported  an  average  turnover 
growth of greater than 60 per cent over the last three years.  

 A start-up that has raised investments of at least 1 million euros has at 
least ten registered employees and has an annual growth in employees 
and turnover of at least 20% within three years.  

European Investment 
Bank 

Start-up Estonia based 
on European Startup 
Network 

 Development-stage business, specific to high-technology markets, that 
is looking to grow in terms of market access, revenues, and number of 
employees,  adding  value  by 
identifying  and  realizing  win-win 
opportunities for collaboration with established companies.  

Startup Europe 
Partnership   

High-growth enterprises - enterprises with at least 10 employees in the 
beginning  of  their  growth  and  having  average  annualised  growth  in 
number  of  employees  greater  than  10%  per  annum,  over  a  three-year 
period. 

Gazelles  -  high-growth  enterprises  that  are  up  to  five  years  old  with 
average annualised growth (turnover or employment) greater than 10% 
per annum, over a three-year period are available. 

High-growth  enterprises  -  rate  of  high  growth  enterprises  (20%  or 
higher  growth  based  on  employment):  number  of  high  growth 
enterprises as a percentage of the population of active enterprises with 
at least 10 employees. 

Eurostat 

Eurostat  

OECD 

Scale-up 

Deep-Tech  start-up  -  the  product  or  service  is  based  on  scientific 
advancement  and  development  or  meaningful  engineering  innovation; 
the  product  or  service  development  is  based  on  or  results  in 
commercialise  intellectual  property  and  therefore  it  is  not  easily 
replicable. 

Deep-tech 

Start-up Estonia  

Deep  tech  –  examples:  artificial  intelligence,  robotics,  autonomous 
driving  &  delivery,  space  flight,  aviation,  computer  vision,  speech 
recognition, AR/VR. 

Dealroom 

2.5.2  Design, implementation and governance 

Policy  experimentation  can  help  to  make  innovation  policy  more  impactful.    The  idea 
behind  policy  experiments  is  to  start  on  a  small  scale,  test  different  policy  designs 
systematically,  learn  lessons  to  increase  impact  and  scale  it  up.  Policy  experimentation 
stimulates  the  emergence  of  such  new  solutions  for  policy  by  de-risking  the  process  of 
exploring new policy ideas and changes (see Box 7). Policy experimentation is intended as a 
way of testing something new or evaluating “what works”, in order to improve policy design 
or  implementation.  It  provides  a  controlled  environment  for  testing  and  devising  novel, 
innovative  public  policy  approaches  to  the  challenges  ahead  before  adoption  and 
implementation186.  Hence,  policy  experiments  can  be  used  for  example  for  evaluating  a 
programme,  improving  an  existing  programme  by  testing  small  or  large  tweaks  in  the 
implementation  process  or  examining  the  underlying  causes  of  a  problem.187  Horizon 

186 European Commission, Directorate-General for Research and Innovation, (2020), A new ERA for research and innovation 
: staff working document, EU Publications Office. 
187 https://www.consilium.europa.eu/media/41259/eurogroup-presentation-november-7th-discussion-note.pdf. 

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Europe’s Strategic Plan 2021-2024188 encourages developing innovations in policy, as well as 
institutional  and  governance  frameworks  by  building  on  strong  empirical  evidence  and 
experimentation  practices  that  can  prepare  for  policy  designs  adaptation  to  the  arising 
challenges and design future pathways.  

However, evidence about the breadth to which policy experimentation is used innovation 
policymaking  in  the  EU  is  not  fully  available.  There  does  not  exist  a  consistent  body  of 
accessible  information  about  policy  experimentation  actions  and  their  features  (stakeholders 
involved,  resources  invested,  geographical  coverage  and  so  on),  their  strengths  and 
weaknesses.  This  knowledge  gap  is  particularly  topical  regarding  how  to  ensure  that  policy 
implementation and goals delivery fully benefit from citizens’ engagement.  

Box 7. Some examples of experimental innovation policies and their impact  

Exposure  to  innovation  when  young:  A  natural  experiment  in  the  US  has  investigated  how  the 
chances  to  become  an  inventor  or  file  a  patent  depend  on  socio-economic  circumstances.189  It  is 
typically  only  the  top  student  from  a  high-income  family  that  will  become  a  future  inventor.  The 
researchers also find that growing up in an area with many inventors is a strong predictor of becoming 
an  inventor.  Lack  of  such  exposure  when  young  could  therefore  lead  to  a  generation  of  “lost 
Einsteins”, which is both detrimental to growth and contributes to income inequality. 

Innovation vouchers: In the Netherlands an experiment with innovation vouchers was undertaken in 
2004  and  2005.  The  aim  was  to  stimulate  the  interaction  between  SMEs  and  public  knowledge 
institutes,  to  try  and  improve  knowledge  diffusion.  These  innovation  vouchers  were  allocated 
randomly by means of a lottery among applicant firms, thus allowing to investigate the causal impact 
of  the  innovation instrument. The long-run  impact  of  this scheme  has recently  been  investigated190, 
with  interesting  results.  It  is  found  that  12  years  after  the  experiment,  firms  in  the  treatment  group 
(those  that  have  received  a  voucher)  have  a  higher  survival  rate,  more  often  use  R&D  tax  credit 
schemes,  invest  more  in  R&D  and  employ  more  workers.  These  effects  are  structural,  but  already 
become visible in the short-term (within two years after the lottery). 

Online  entrepreneurship  courses:  An  experimental  study  in  Denmark  looked  into  the  impacts  of 
randomly  offering  online  entrepreneurship  courses  to  secondary  school  students.191  The  researcher 
finds that students who took the online course were more open to pursue a career in entrepreneurship, 
had  higher  self-efficacy,  and  had  more  positive  entrepreneurial  attitudes.  One  year  after  the 
experiment, the differences between the treatment group and the control group who did not take the 
online course were smaller, but still present.  

Innovation  contests:  One  way  to  make  innovation  more  inclusive  is  through  innovation  contests, 
enticing people to participate who may not naturally consider themselves innovators or creative. An 
experiment in the Netherlands has shown that this indeed could pay off.192 This experiment has shown 
that  with  nudging  or  small  financial  incentives,  people  can  be  encouraged  to  submit  ideas  into 
innovation  contests,  without  a  decrease  in  the  quality  of  these  ideas.  Simply  relying  on  self-
volunteered contributors thus comes with a cost as we are missing out valuable ideas. 

188 Horizon Europe Strategic Plan (2021 – 2024) European Commission, 2021. 
189  Bell,  A.,  R.  Chetty,  X.  Jaravel,  N.  Petkova,  Van  Reenen,  J.  (2019),  ‘Who  Becomes  an  Inventor  in  America?  The 
Importance of Exposure to Innovation’, Quarterly Journal of Economics, 134 (2), pp. 647–713. 
190  Roelandt,  T.,  van  der  Wiel,  H.  (2020),  The  long-term  impact  of  Dutch  innovation  vouchers:  Back  to  the  future  with 
randomised controlled trials, Innovation Growth Lab. 
191 Moberg, S. (2021), ‘Online-based entrepreneurship education-its role and effects: A randomised controlled trial about the 
effects of an online entrepreneurship programme based on role models”, Journal of Entrepreneurship Education, 24(2). 
192 Weitzel, U., C. Rigtering, Fenneman, A. (2019), ‘Increasing Quantity without  Compromising Quality: How Managerial 
Framing Affects Intrapreneurship”, Journal of Business Venturing, 34 (2), pp. 224–241. 

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A transformative193 and forward-looking innovation policy also emphasises the necessity 
for  novel  forms  of  governance,  which  are  aimed  at  ensuring  end-users  and  citizens 
engagement,  thus  allowing  for  co-creation  and  co-evolution  of  society  and  innovation 
policies,  and  be  prepared  for  the  challenges  ahead.  The  ESIR  high-level  expert  group194 
provides  evidence-based  policy  advice  to  the  Commission  on  how  to  develop  a  forward-
looking  and  transformative  research  and  innovation  policy.  Such  a  framework  calls  for  an 
effective framework for coordination, aligning innovation policy and other sectoral policies 
at all levels of governance (i.e. EU, national and regional) through a “whole of government” 
approach  that  encompasses  the  coordination  of  policy  instruments,  an  alignment  of  policy 
objectives and the synchronisation of investments.  In  order to  be transformative, innovation 
policy  should  go  beyond  a  narrow  sectoral,  business  and  growth  perspective,  but  should  be 
horizontal,  inclusive  and  aim  for  strategic  policy  mix  for  system  innovation  and 
transformative change.195 This means innovation policy, together with environmental policy, 
cannot  be  effective  with  respect  to  environmental  and  climate  targets  if  economic  policies 
promote  fossil  fuels,  resource  inefficiency  or  unsustainable  production  and  consumption. 
Similarly, innovation policy need to go hand in hand with education and employment policies, 
building  capacities  and  skills  for  students  and  labour  force  to  support  the  transitions196. 
Furthermore, the size of the challenges that need to be addressed call for collective action and 
critical mass, hence coordination of efforts and results from national innovation systems. 

Several  EU  instruments  support  Member  States  and  regions  in  designing  and 
implementing  better  innovation  policies.  Reforms  of  national  systems  are  encouraged 
notably  through  the  European  Semester  of  economy  policy  coordination.  The  Semester 
constitutes the basis for an in-depth policy dialogue with national authorities and stakeholders 
based  on  factual  evidence  and  cross-country  benchmarking:  the  analysis  of  the  capabilities 
and performance of the  different  components of  each national  innovation system and of the 
interlinkages between enables to identify the key bottlenecks impeding the full contribution of 
innovation  to  growth  and  national  competitiveness.  During  its  2022  cycle,  the  European 
Semester  resumes  its  broad  economic  and  employment  policy  coordination,  while  further 
adapting  in  line  with  the  implementation  requirements  of  the  Recovery  and  Resilience 
Facility.  This  approach  leads  to  targeted  Country-Specific  Recommendations,  which  can 
trigger  a  request  for  assistance  by  Member  States  through  instruments  that  support  national 
reforms  such  as  the  Horizon  Policy  Support  Facility  (PSF)  or  the  Technical  Support 
instrument (TSI). The PSF gives Member States and countries associated to Horizon Europe 
practical support to design, implement and evaluate reforms that enhance the quality of their 
research and innovation investments, policies and systems. The TSI can be used by Member 
States  to  request  technical  support  for  implementing  national  reforms  on  various  areas, 
including those aiming at improving R&I policies and systems. Technical Assistance under 

193  A  transformative  innovation  policy  approach  simultaneously  supports  directionality,  coherence  and  alignment,  societal 
engagement,  experimentation  and  foresight.  It  can  help  to  fill  in the  current  gap between  policy  ambitions  and  the  lack  of 
structured knowledge on the effectiveness of policy and governance interventions to achieve these ambitions. It can provide 
an  evidence  base  and  methodological  approach  to  design  and  implement  innovation  policies  and  programmes  –  such  as 
Horizon Europe planning and programming of the work programme for 2023-2024 and the Strategic Plan for 2025-2027 - 
that aim to accelerate the twin transitions. See also: European Commission, Directorate-General for Research and Innovation, 
Biggeri,  M.,  Ferrannini,  A., (2020),  Framing  R&I  for  transformative  change  towards  sustainable  development  in  the 
European Union, Publications Office; European Commission, Directorate-General  for Research and Innovation, Borunsky, 
L., Correia, A., Delauré, S., Martino, R., Rakic, R., Ravet, J. (2020), Making R&I transformative : evidence in support of the 
new European Research Area Communication, Publications Office. 
194 
policy/esir_en. 
195  Lundin,  N.,  Schwaag  Serger,  S.  (2018),  Agenda  2030  and  A  Transformative  Innovation  Policy  –  Conceptualizing  and 
experimenting with transformative changes towards sustainability, Transformative Innovation Policy Consortium WP 2018-
01. 
196 Biggeri, M. and Ferrannini, A. (2020),  Framing R&I for transformative change towards sustainable development in the 
European Union, R&I paper series, working paper 2020/11, Publication Office of the European Union, Luxembourg. 

https://ec.europa.eu/info/research-and-innovation/strategy/support-policy-making/shaping-eu-research-and-innovation-

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the Technical Assistance for regional policy is also available to help stakeholders set up and 
ensure  the  organisational  conditions  which  would  allow  the  smooth  implementation  of  the 
European  Structural  and  Investment  Funds  interventions,  which  includes  interventions  to 
boost research and innovation capacity. 

2.5.3 

Innovation procurement 

The potential  of public procurement  to bring  innovative solutions  to the  market  is  not 
fully  exploited  in  Europe.  Public  buyers  in  the  EU  spend  around  17%  of  GDP  on  public 
procurement  every  year,  amounting  for  more  than  €2.3  trillion  per  year.197  Procurement 
represents a key source of demand for firms in sectors such as construction, health care, space 
and  defence  systems,  energy  and  transport.  The  public  sector  can  employ  innovation 
procurement  as  a  powerful  demand-side  instrument  for  tackling  societal  challenges198,  and 
this  use  of  public  demand  as  an  engine  for  the  development,  uptake  and  diffusion  of 
innovation has attracted interest both at EU and national levels. In 2004, France, Germany and 
the  UK  issued  a  position  paper199  to  the  European  Council  calling  for  the  use  of  public 
procurement  across Europe to  spur innovation,  which was continued by various calls of the 
Council  of  the  European  Union200.  In  2015,  the  European  Research  Area  and  Innovation 
Committee  (ERAC)  in  the  Council  adopted  a  position  with  5  concrete  recommendations  to 
mainstream innovation procurement across Europe201: creating national strategies and action 
plans, financial incentives, national competence centers, EU wide knowledge sharing and an 
EU  wide  monitoring  system  for  innovation  procurement  with  an  indicator  in  the  EU 
Innovation Scoreboard. 

In order to address these challenges, several actions have already been taken at national 
and  EU  level.  At  national  level,  10  Member  States  have  meanwhile  setup  national  action 
plans  or  strategies  for innovation  procurement,  12  have  national  competence  centres,  13 
provide national financial incentives and 9 setup national monitoring. 11 Member States have 
already implemented policies that encourage public buyers to leave IPR ownership in public 
procurements as much as possible with contractors in line with the recommendation of the EU 
IPR action plan. At EU level, the European Commission has gradually reinforced since 2013 
EU  financial  incentives  for  innovation  procurement.  Grants  in  EU  funding  programmes 
such  as  Horizon  2020,  Horizon  Europe,  COSME,  Innovation  Fund,  CEF,  Digital  Europe 
Program and the European Structural Funds have already co-financed hundreds of innovation 
procurements  and  the  new  Recovery  and  Resilience  Facility  will  fund  many  more  to  come. 
The EIB has also provided loans to Member States for innovation procurement programs. The 
Commission  also  funded  the  creation  of  a  European  network  of  national  competence 

197  2018  figures.  This  spending  consists  of  €1  765  billion  (13%  of  GDP)  of  public  procurement  performed  by  public 
authorities, €436 billion (3.5% GDP) by public procurers in the energy, transport, postal, water and waste management sector 
and €75 billion (0.5% GDP) by defence procurers. Source: European Commission, Directorate-General for Communications 
Networks, Content and Technology (2021), The strategic use of public procurement for innovation in the digital economy: 
executive summary in English, French and German, Publications Office. 
198 Lember V., Kattel R., Kalvet T. (2014), How Governments Support Innovation Through Public Procurement: Comparing 
Evidence from 11 Countries, in: Lember V., Kattel R., Kalvet T. (eds), Public Procurement, Innovation and Policy, Springer, 
Berlin, Heidelberg. 

199  French,  German,  UK  Governments,  2004.  Towards  and  innovative  Europe.  A  Paper  by  the  French,  German  and  UK 
Governments. 20 February 2004 
200 See in particular: COMP Council Conclusions (30 May 2008, 26 May 2010, 21 Feb 2014, 27 May 2016), EU Council 
Conclusions (4 Feb 2011, 26 April 2012 and 25 October 2013) and EP resolution on PCP (3 Feb 2009) 
201 ERAC opinion on innovation procurement, 23 June 2015 (https://data.consilium.europa.eu/doc/document/ST-1209-2015-
INIT/en/pdf). 

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centres  on  innovation  procurement202  and  a  European  Assistance  For  Innovation 
Procurement203. In 2021, the Commission also published the first  EU-wide benchmarking 
on  national  policy  framework  and  investments  on  innovation  procurement176  and  is 
preparing  to  launch  the  second  one  to  take  stock  of  progress  made  meanwhile.176  and  is 
preparing to launch the second one to take stock of progress made meanwhile. 

Evidence has  also been building up on the positive impacts of innovation procurement 
both for public buyers and participating companies and researchers. Literature suggests 
that  innovation  procurement  has  a  positive  impact  on  private  spending  on  research  and 
innovation  activities  and  innovation  commercialisation  success204,  and  it  also  appears  that 
innovative public procurement may be more effective than R&D grants in stimulating private 
expenditure  on  innovation.205  EU  funded  pre-commercial  procurements  have  proven  to 
decrease costs of innovative solutions with 20% for public buyers, increase interoperability of 
solutions  with  50%, open up 20 times more  cross-border sales opportunities for companies, 
almost  triple  the  amount  of  contracting  from  SMEs  and  more  than  double  their 
commercialisation  success  rate206.  Similar  effects  have  been  observed  in  such  procurements 
across Europe207. A Eurobarometer survey also showed that companies that participated in a 
public  procurement  of  innovative  solutions,  were  4  times  more  likely  to  win  additional 
procurement  contracts  later208.  Recent  studies  show  a  solid  and  robust  relationship  between 
the  share  of  public  procurement  for  innovation  (PPI)  in  public  procurement  and  GDP  per 
capita for 30 European countries.209  

Despite  the  efforts,  public  buyers  across  Europe  are  still  not  widely  implementing 
innovation  procurement  (Figure  46).  Benchmarking  across  30  European  countries210 
demonstrated  that  in  2018  these  countries  devoted  9.6%  of  their  total  public  procurement 
expenditure  (10.6%  when  including  defence)  to  the  purchase  of  innovative  solutions,  an 
equivalent  of  €265  billion  excluding  defence  and  €305  billion  including  defence.  This 
consisted  of  €16.6  billion  of  R&D  procurement  (€10.2  billion  excluding  defence)  and  €288 
billion of procurement of innovative solutions (€255 billion excluding defence). This means 
that  R&D  procurement  investments  were  still  only  at  0.6%  instead  of  3%  of  total  public 
procurement  expenditure,  while  investments  in  public  procurement  of  innovative  solutions 
were at 9.3% instead of 17% of total public procurement. While overall a doubling of overall 
innovation  procurement  investments  is  needed  to  reach  20%  of  public  procurement 
expenditure, the biggest increase (with a factor 5) is needed for R&D procurements. 

202 https://procure2innovate.eu/home/. 
203 www.eafip.eu provides local innovation procurement assistance to public buyers across EU Member States. 
204 Edquist C., Zabala-Iturriagagoitia J-K. (2012), ‘Public Procurement for Innovation as mission-oriented innovation policy’, 
Research Policy, 41(10), pp. 1757–1769. 
205 Guerzoni M., Raiteri.E. (2015), ‘Demand-side vs. supply-side technology policies: Hidden treatment and new empirical 
evidence on the policy mix’, Research Policy, 44(3), pp. 726–747. 
206 Impacts of EU funded Pre-Commercial Procurements, published on EU webpages. 
207 Comparison of impacts of national and EU level pre-commercial procurements, published on EU webpages. 
208 Flash Eurobarometer 394. The role of public support in the commercialisation of innovations, 2004. 
209  Bento,  N.,  Sousa,  C.,  Trindade,  P.,  Paes  Mamede,  R.,  Fontes,  M.,  Alves,  T.  (2022),  ‘Robust  relation  between  public 
procurement for innovation and economic development’, Economics Letters, 211, 110241. 
210  European  Commission,  Directorate-General  for  Communications  Networks,  Content  and  Technology  (2021), The 
strategic  use  of  public  procurement  for  innovation  in  the  digital  economy:  executive  summary  in  English,  French  and 
German, Publications Office. 

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Figure 46. Benchmarking of  national procurement for innovative solutions out of total 
public procurement expenditure (including defence), 2018 

Source: European Commission. The strategic use of public procurement for innovation in the 
digital  economy:  executive  summary  in  English,  French  and  German,  Publications  Office, 
2021. 

The  underlying  factors  explaining  underinvestment  are  linked  to  the  status  of 
development of national policy frameworks for innovation procurement. On average, the 
30  countries  around  Europe  have  so  far  only  deployed  one  quarter  (26.6%)  of  the  potential 
measures  to  stimulate  innovation  procurement.  However,  countries  with  stronger  national 
policy  frameworks  that  have  deployed  a  more  comprehensive  set  of  policy  measures  also 
achieve higher national  investments  in  innovation procurement, and as  a result faster public 
sector modernisation and faster industrial growth. The benchmarking therefore concluded that 
additional  EU  and  national  efforts  are  needed  to  substantially  reinforce  both  policy 
frameworks and investments in innovation procurement. 

73