New start-up companies are a very important part of the economy, and the objective of a pre-seed or seed fund is to create a separate vehicle that functions for a limited time period and provides support for them.
Pre-seed funds provide a framework and support for nascent companies to develop their innovative technological ideas and form new business ventures that can attract private investors.
Azione helps in the creation of programmes for individual inventors, new start-up companies, and small-scale manufacturers who are making their first steps towards commercialising technological ideas. These programmes should offer help in a broad range of subjects ranging from legal fees to register patents to building a prototype, paying consultants, or showing products in trade fairs.
Support should also include assistance in evaluating the concept’s technological and commercial potential, patent proposal preparation, prototype construction, business plan preparation, establishing contact with appropriate industry representatives, and attracting investors.
Seed funds encourage private investments and increase the number of new start-up companies.
The programme is based on the government matching investments in start-up companies in exchange for equity and on giving options to private investors to purchase government shares in the start-ups at the initial pricing.
The public agency is hence exposed to the same downside risk as in a standard co-investment model, but has less upside potential, which reduces the expected return on its investment. Azione guides the public agency on the market forces where the government should be able to obtain a positive return on its investment.
This approach also raises the expected return to private investors. It helps align private incentives with public interest by giving private sector fund managers an incentive to invest in firms that have substantial upside potential rather than using government funds to offset losses on poor investments.