Austria’s entrepreneurial bureaucracy
As we sat down to study a flowchart diagramming Austria’s public-sector financing for Research, Technology and Innovation (RTI), the Deputy Director General for Innovation Policy of the Federal Ministry for Transport, Innovation and Technology (BMVIT), Mag. Ingolf Schädler, helps to demystify the tangle of lines. “It looks more complicated than it is. Look at the UK, they have 12-15 research councils. German funding goes through each state’s own local bureaucracy, who sometimes approach us for information on what’s happening in Berlin and Brussels.”
Although Schädler consistently uses the pronoun “we” when he refers to his work, he is proud of his individual efforts spanning more than 30 years of civil service. “I am an entrepreneurial bureaucrat – a middleman between the private sector and the bureaucracy,” he explains. In the mid-1980s, after spending some time in the USA flirting with startup venture capitalism, Schädler returned to Austria to help launch public-sector seed-financing in Austria. Since then he has worked tirelessly to leverage private sector investment with public financing of research, technology, innovation and infrastructure.
Seed Financing: expect the unexpected
Schädler recalls that the pressure for public-sector seed financing came from Austria’s own venture-capital sector, “who said that early-stage financing was missing. So we took on the grass-root financing to help entrepreneurs get to proof-of-concept.”
“I have to say, the outcome of all our endeavours is quite strange. On the one hand, the traditional, old economy in Austria – steel, for example – is an international success story today because of outstanding investment in R&D. But the startups didn’t turn outhow we expected them to.”
“After a certain period, VC died in Austria. There are many reasons – the banks closed it down, it was too risky, the expectations were not met…. Then, as now in some ways, legislation does not favour high-risk capital venture. The Austrian stock market is very small. Real entrepreneurs clash against visible and hidden borders, and so they left for a more favourable environment abroad.”
We underestimated the psychology and cultural behaviour of Austrian ventures, which is common in central Europe.”
“But we also underestimated the psychology and cultural behaviour of Austrian ventures, which is common in central Europe,” Schädler adds. “We had some projects which were extraordinarily interesting. VC was lining up to fund them, but the entrepreneurs said, ‘no thanks, we don’t want VC down our necks, we don’t want only to make money, I don’t want an exit strategy. This is my company and I want to stay with it as long as I live.’ Others said, ‘we’ve left our jobs at big companies in order to create our own startup. I had a boss on my neck the last ten years, now I don’t want someone telling me what to do!’
“Once, an outstanding pair of entrepreneurs in Styria had invented a smart, new cost-efficient fibre-optic production process. VC from all over the world were lining up to invest, help them to set up factories around the world. But they told me, ‘NO! Please, we don’t want to do that! I can handle 50, maybe even 100 people working for me, but I won’t be able to sleep at night if I must be responsible for thousands in factories around the globe!’ So they license their technology instead of taking a chance to become champions themselves.”
Macro vs. Micro Investment
And so it is that the lion’s share of public investment in RTI goes to classic, traditional industries – “the reason why Austria is the second richest per-capita country in Europe. That doesn’t come from tourism alone!” believes Schädler. “Modern infrastructure has always been the focus of BMVIT and will continue to be.” The success and international influence of innovation in Austria’s steel, transportation infrastructure and automotive-supply industry, as well as rapid growth in its aeronautic and green-energy sectors, attest to the decades of public-sector macro investment in R&D.
Schädler says that Austria is below-average in terms of supporting emerging enterprises and should be doing more. “It’s not a problem of the proper instruments being unavailable, but also it lies in the popular mentality. A few years ago, students from the University of Vienna were surveyed and an overwhelming majority said they wanted to be civil servants! I thought, ‘where I am?!’ Sure, I’ve been one for thirty years, but the world has become so much bigger now… on the other hand, the level of insecurity has risen. There is no longer a lifelong occupation,… so I understand the desire for – what appears to the outside, at least – the safety and security of civil service. But when young people get the entrepreneurial spirit, we are there to support them. We need to convince politicians to pay more attention, beyond lip service, to this area. It would be great to have a startup entrepreneur as the Minister of Economics, then things would really change!”
Challenges for the future
The “skills gap” between demand for innovation and the supply of talent to fill it is certainly not a problem unique to Austria. Despite efforts at international cooperation in R&D, there is still much competition between countries to attract the best researchers and innovators. Austrian universities are ranked in the top 10 per cent worldwide, however the high student-to-teacher ratio here reduces their attractiveness. Schädler acknowledges that “there is a brain drain – we can’t compete with the USA, where it’s not uncommon to see a promising young researcher have $50 million thrown at him.
But it’s a chicken-and-egg dilemma. The companies want to hire more women, but the supply isn’t there.”
He also admits that Austria has a gender gap – only 25 per cent of the RTI workforce is female, which is low in absolute terms and in comparison to other EU countries. The FFG encourages enterprises that boost their female ranks, as well as those importing foreign talent, by giving extra points to their applications. “But it’s a chicken-and-egg dilemma,” Schädler says, “the companies want to hire more women, but the supply isn’t there.”
Domestic vs. EU policy
Another challenge is adapting domestic planning to the EU-wide research objectives, known as “Horizon 2020.” The six-year plan divides funding into three RTI “pillars”: “Excellent Science” (i.e., basic research); “Societal Challenges” (i.e., implementing social policy); and “Industrial Leadership” (i.e., technological development). The latter includes the seemingly thin 0.8 per cent sliver for “Innovation in SMEs,” however 3.7 per cent is earmarked for “access to venture capital” to help SMEs expand into leading global enterprises.
To align itself with these goals, an “RTI Taskforce” promises to get the various ministries and agencies to work together more efficiently, “assisted by outcome-oriented impact assessments and impact-oriented budgetary planning.” Additionally, the FFG will “reorganise and improve its support and consulting services to focus on strategic consultation.” Of course, that’s all just bureaucratese for that old VC meme, “show me the metrics.”
What does the future hold in store for Ingolf Schädler? Apparently, he’ll stay put in civil service: “I’m leading a new European research initiative called, ‘Thinking About the City of the Future,’” he says while rushing out to catch a plane to one of Europe’s oldest cities, Rome. “That’s another fascinating topic, but perhaps for another interview!”
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