This document discusses making EU innovation policies better suited for web-based innovation. It argues that current policies, like the Framework Programme, were designed for 20th century capital-intensive R&D and do not attract innovative SMEs or translate research to marketable products. "Light and fast" funding that is open, bottom-up, and rewards achievement rather than paperwork could help. The document examines cases like inducement prizes in the US and Europe that use these principles successfully. It concludes that options like open funding, prizes, and procurement of innovation should be adopted to address gaps and make EU policy fit for web-based innovation challenges.

1. 1
“Light and fast” funding for innovation:
Making EU innovation policies fit for the web
David Osimo – Tech4i2 ltd David.osimo@tech4i2.com
Table of contents
Abstract.................................................................................................................................................. 2
1
Background and methodological approach................................................................. 3
2
The problem: innovation policies failed to reduce the web competitiveness
gap............................................................................................................................................................ 4
3
The reasons: an innovation policy designed for the 20th
century...................... 6
4
A new objective, and its challenges.................................................................................. 8
5
Cases................................................................................................................................................. 9
5.1
The Principi Attivi initiative of the Puglia Region........................................... 9
5.2
The Global Security Challenge.................................................................................10
5.3
The US government challenge.gov platform....................................................13
6
Analysis: why and how........................................................................................................13
6.1
Design: the key features of light and fast ...........................................................15
6.2
Participation and impact.............................................................................................16
7
Conclusions: yes we can.......................................................................................................16
8
References....................................................................................................................................17

2. 2
Abstract
EU Research and innovation policies are designed for investment-­-­‐intensive
research and do not fit with the innovation paradigm of the web: this gap is
growing by the day. For instance, the emergence of web 2.0 has been notably
missed by the roadmap-­‐based approach of the EU Framework Programme
until it has reached full maturity, and this has certainly not helped the
competitive positioning of EU web companies. The future does not look
promising: in the context of increased global competition and a dramatic
economic, financial and fiscal crisis, simply pouring fresh money into the
existing programmes is not a viable option. The paper aims to advance
concrete proposals on “innovating innovation policies”. It sets out a
taxonomy of features would make R&I programme “fit for the web”, such as:
capacity to involve of new actors beyond “the usual suspects”; openness to
bottom-­-­‐up innovation; involvement of the users and demand from the early
stage; flexibility to accept modifications in project outcomes; shorter time-­-­‐to-
­-­‐market and smaller projects; the usage of reputation and networks in the
selection process in order to reward excellence. These features are notably
absent from traditional R&I programmes. This gap is not new: it is recognized
in ex-­-­‐post evaluation of the programmes, and is today accepted also by
policy makers. Initial steps have been taken such as the decision to adopt a
new integrated framework for Research and Innovation (Horizons 2020). But
this decision remains at the level of “declaration of principles”, while the
critical issues is the translation into concrete policy choices. We argue that
there are today concrete features that are effective in addressing these gaps:
these include specifically open and bottom-­-­‐up funding; inducement prizes;
reputation-­-­‐based funding; and public procurement of innovation. The paper
presents a long-­-­‐list of examples, from Europe and abroad, on policies that
match these features. It then analyze in depth three case studies of these
policy measures: the Security Challenge (US), NESTA, (UK) and FET-­-­‐Open
(EU). Based on these cases, for each instrument, it analyzes the potential
benefits and drawbacks, and extracts key lessons learnt. For instance,
inducement prizes are found to be a very effective demand-­-­‐driven approach
to attract new innovators and overcoming the “usual suspect effect” of
current funding framework. Because they reward achievement rather than
project-­-­‐writing skills, they are also particularly effective in translating
research results into marketable products. There is therefore a growing usage
of inducement prizes in the context of open innovation policies, also by the
public sector: the US government has in one year managed through its
internal platform Challenge.gov about 38 Million dollars worth of prizes. The
paper concludes therefore that these are readily actionable options to address
the gap of existing innovation policies, that should be urgently adopted
within the reform of EU research and innovation policies.

3. 3
1 Background and methodological approach
This paper is set in the context of the debate around the forthcoming Horizon
2020 programme, the main European funding instrument for research and
innovation. Both the Digital Agenda for Europe (COM(2010) 245) and the
Innovation Union (COM(2010) 546) argue that there is a need for a change in
the way innovation is funded, as recent evaluations have confirmed that the
traditional design of the Framework Programme is unfit to involve the most
innovative SMEs. Both initiatives mention the need for “Light and Fast”
funding instruments.
Light
and
fast
funding
instruments
are
already
in
use
in
the
private
sector:
this
is
the
form
that
seed
and
venture
capital
typically
takes,
through
agile
selection
processes
that
focus
on
the
project,
are
incremental
in
nature
and
focus
on
content
rather
than
paperwork.
It
is
also
frequently
in
the
non-­‐profit
sector,
in
cases
such
as
Omydiar
Network1
,
Digital
Pioneers2
in
the
Netherlands,
ant
the
Open
Society
Foundation.
However,
its
implementation
in
the
context
of
government
funding
for
innovation
appears
far
more
challenging.
This study brings together studies carried out by the author on EU innovation
policy, and specifically for the European Commission on Enterprise 2.0
(Osimo 2011); Collaborative e-government (Osimo 2012); Impact assessment
of FP8 (Deloitte and Tech4i2 2011); Crossroad research roadmap (Osimo et al
2011) and for IBBT (Osimo 2009). Needless to say, the paper only presents
personal position of the author.
The questions that this study addresses are therefore:
1. Is it necessary that future EU innovation policy include light and fast
funding instruments, and why?
2. Is it feasible to adopt these instruments in the government context?
3. How could they be designed?
The methodology is based on the traditional Policy Impact Assessment
approach (EC 2009). At its core lies the notion of explicit causality relations as
a transparent mechanism to design effective policies. The paper follows
therefore a linear logical reasoning:
1. Definition of the problem and its implications: the incapacity of
European innovation policy (and namely FP) to attract innovative
players and to stimulate the EU web competitiveness
2. Identification of its causes: the design of the FP is appropriate for
capital intensive R&I but at odds with the web innovation paradigm
3. Description of the objective: to design “light and fast” innovation
policies that are fit for the web; and the most common objections raised
to is implementation
4. Identify through exemplary case studies the design of the programme,
in order to describe what are the key features that make innovation
policy “fit for the web” - therefore address “the causes” identified
above at point 2
1
http://www.omidyar.com/
2
http://digital-­‐pioneer.net/

4. 4
5. Analyse its impact in terms of participation, with particular regard to
the involvement of most innovative players; and the impact, with
particular regard to the capacity to generate marketable innovation –
therefore addressing “the problem” identified above at point 1.
Based on this analysis, and in particular in how it addresses the objections
raised in point 3, we provide a set of actionable policy recommendations.
The logical model of this analysis is illustrated below.
Figure 1: The logical model of the Impact Assessment analysis
The definition of the problem and its causes determine the answer to the first
research questions and it is based on desk-based research.
The answer to the second research questions derives by the identification of
relevant cases studies of light and fast funding instruments in the public
sector. The very existence of such programmes in the context of public
funding for innovation confirms its feasibility.
The more complex third research question is answered through an analysis of
the three case studies based on primary research (interviews and grey
literature), integrated with desk research on similar case studies. In particular,
the case studies are used to identify actionable answers to the most common
objections identified in section 4.
Each case study is analyzed in terms of description of the design features,
participation of innovative players and capacity to bring innovation to
market.
2 The problem: innovation policies failed to reduce the
web competitiveness gap
The “innovation gap” between Europe and the US in the domain of web-
based companies is undisputed. Almost all the most known global web
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5. 5
brands, such as Facebook, Google, Foursquare, Twitter, Innocentive and
Linkedin, are US-based. While there are plenty of European successful start-
upss, they fail to grow and reach critical mass. According to Lindmark (2009),
only 14 out of the top 99 web 2.0 companies were based in Europe. At a
moment when Facebook just launched a public IPO with an estimated
evaluation at 94 billion dollars, it is worth remembering that the single most
successful European social networks, Tuenti, sold to Telefonica at a valuation
of 75 million Euros.3
The implications of this gap for the European economy are difficult to
estimate but likely to be significant.
The impact of web industry in terms of GDP and job creation is far from being
clearly established. Industry-funded studies from Boston Consulting Group
(2011) estimate that the digital economy accounts for more than seven percent
of GDP in the UK but the very definition of the “digital economy” is far from
being consolidated.
In terms of final users, the risk of negative impact appears negligible as
European citizens and companies have so far access to similar services than
US-based companies and citizens. McKinsey and IAB Europe found European
consumers enjoy €100 billion in consumer surplus—almost three times the
revenue online advertising companies receive (McKinsey 2010).
More worrying it the medium-term gap in terms of innovation spillover
effects (Nadiri 1993). Web-based services’ competitive advantage lie the
personal data they collect. Personal data are increasingly seen as key strategic
assets for companies and regions: in the words of WEF (2011) “personal data
will be the new “oil”. Because of the lack of web companies in the EU, the
personal data of the European citizens are now largely owned by US
companies, which then resell them as value added services to European
companies for example for advertising purposes.
The European gap in web competitiveness is therefore considerable, and it is
likely to have negative socio-economic implication both directly and
indirectly.
While this problem has long been recognized, existing policy instruments,
and namely the Framework Programmes, have so far been unsuccessful in
overcoming it.
In particular, two shortcomings of the Framework Programme that have been
particularly hard to address are:
-­‐ with regard to participation, the involvement of innovative SMEs
-­‐ with regard to impact, the lack of capacity to translate research results
into marketable products
These are problems that are transversal to all priorities of the Framework
Programme, but particularly relevant for the specific context of web
industries.
On the latter problem, with regard to web-based services, the most important
web innovations of the last years have been noticeable for their absence in the
Framework Programme, such as social networking. There is almost no
3
http://www.expansion.com/2010/08/03/empresas/tmt/1280869139.html

6. 6
evidence of successful web start-ups born out of the research carried out in
FP, and most of the projects remain far from market deployment (Arnold
2011).
On the former, innovative start-ups shy away from the Framework
Programme: the ex post evaluation of the Framework Programme
demonstrate that “there are major barriers to involve the most innovative and
growth oriented SMEs”: only 5% of the SMEs holding highly cited patents
participate in the Framework Programme (Aho et al. 2008). The FP has a
strong “usual suspects” effect were the same companies tend to participate,
based on their expertise to navigate the daze of EU funding. (Arnold 2011):
“Framework Programme contains limited countervailing activity that would
stimulate disequilibrating, disruptive technologies and innovations that can
unseat the established players and unleash the development of new
industries”. This is typically of any complex funding instruments: they
typically tend to attract the “money grabbers” (Cottica 2009 and Prieto Martin
2011) rather than the real innovators.
3 The reasons: an innovation policy designed for the
20th
century
Traditionally, the most recognized reasons for this non-participation is the
complexity of administrative procedures behind FP funding, which make
“compliance difficult for any organisation that lacks specialised personnel to
deal with the problems” (Arnold 2010).
We take a more general perspective, and argue that the main reason behind
this lack of participation is that the design of the main EU innovation policy
instruments, the Framework Programme on Research and Innovation, is
simply not appropriate for web innovation. The Framework Programme was
designed in the 1980s to foster innovation in hardware and
telecommunications, and partially for packaged software. The programme is
designed, and effective, for capital-intensive innovation, with long and
predictably innovation cycle (such as Moore Law). Semiconductors,
nanotechnologies and other enabling technologies need stable, large-scale
investment that allows existing companies to increase their competitiveness
through innovation. The nature of innovation in the ICT sector has changed
radically in the last years. The Ghent Manifesto spells out the key challenges
and requirements of a renewed innovation funding: truly multidisciplinary,
demand-driven, market oriented and agile. (Ghent Manifesto 2009)
The simple comparison of the design of a typical FP7 STREP project in
applied software research and the product release cycle of a web start-up
illustrate this difference.
A typical FP7 STREP (Specific
Targeted
Research
Projects) has a budget of
around 3 million Euros, spread between 5/6 partners from different
countries. The project is conceived after the call for proposal comes out, which
typically leaves about 6 months before the final submission, and further 8
months for evaluation and administrative formalities before the projects kicks
off. The duration of STREP is typically 36 months, which makes about 50
months between conception and delivery. If you take into account that the
actual call for proposal indicating the specific research areas to be addressed,
takes about 6 months of preparation, one can easily calculate that the time-to-

7. 7
market from the identification of the research problem to the final delivery is
about 5 years, and any change of scope in the process has to be justified,
authorised and fully documented. To put this in perspective, five years ago
Twitter was just being launched: the problems identified in any work
programme are unlikely to be relevant after such a period of time.
The most important web innovation cycle range between a few days to a few
months, are led by a very small team with constant iteration, is designed to
address emerging needs in an agile and bootstrapped way. Decisions and
modification are taken on a daily basis and after the service is launched.
Table 1: Differences between typical STREP projects and typical web innovation
Typical FP7 STREP
project
Typical web new
product or service
Budget 3 Million Euros Below 100.000 Euros
Team 5/6 partners (large
companies, SMEs,
university professors,
consultancies) – usual
suspects
Start-ups or small
informal group, often by
drop-off students -
outsiders
Time-to-market 4/5 years (6 month call
preparation, 6 month
project writing, 8 months
evaluation, 36 months
project duration)
3 months
Main presentation
vehicle
60 pages project 2 minutes elevator pitch
Approach Technology roadmap
based
Demand-pull and user-
driven
Disciplines Computer science,
engineering
Integration with design,
marketing, business
Management Linear and engineered Emergent and agile
Type of innovation Technological Business model
innovation
Users involvement 22 months after start From month 1
Distribution of
innovation
90% before public release,
then minor adjustment
90% after first beta release
Failure Exceptional and to be
avoided
Normal and fast
Changes Exceptional, through
formal authorisation
which lasts weeks
Normal and daily
Selection process Mostly ex ante, based on
assessment “on paper”
Mostly ex post, based on
results

8. 8
4 A new objective, and its challenges
However blunt the statement might look, its core message is far from new,
and it is widely recognized in policy debate. The ISTAG advisory group calls
for the EC to “Enlarge the stakeholder community as new, non-conventional
actors become increasingly important […] Create open fast-track schemes for
innovation detection, amplification, and acceleration”(ISTAG 2010). The
Digital Agenda action 52 proposes SME-­‐targeted
activities
including
open
schemes
from
2013.
However these general objectives has not (yet) been translated in concrete
requirements. The proposed measures within Horizons 2020, as described in
the most recent proposal (COM 2011/808) are incremental modification to the
existing framework, basically in the direction of administrative simplification
and dedicated funding for SMEs, and they no longer mention terms such as
“light” “open” and “fast” instruments.
We argue that there is certainly a welcome progress a bolder, more disruptive
approach is needed. The problem analysis highlighted in the previous section
call for a radical re-design of the funding programme, at least for what
concerns applied research. We posit that this design of the funding
programme makes it impossible to achieve any significant web innovation,
and that especially in times of budgetary restrictions the alternative is to
introduce radically new instruments or to cut the research and innovation
budget on applied web-related research altogether. In particular, the capacity
for reaching outside the usual suspects should the key priority of Research
and Innovation policy on ICT, where most of the innovations come from new
players.
The reasons behind this lack of progress in this area are to be found not only
in traditional institutional stickiness and resistance to change, but also in
sensible objections:
1. Light and fast instruments are not allowed by financial regulations:
accountability, control and audit systems make it unfeasible to carry
out
2. They are much more labour intensive for the funding agency:
managing small and open-ended projects requires a deeper level of
engagement by the agency
3. They lack a critical mass to generate disruptive innovation on the
market
4. They lack rationale for EU-level intervention since they are most
effective at regional/local level: one of the key arguments for EU-level
intervention according to the Impact Assessment methodology is the
need for adequate critical mass and financial resources. Therefore,
small funding is expected to be more local, as if there is a correlation
between the amount of the funding of the single project and the
geographical coverage of the funding institution
In the rest of this paper, we analyse three cases of funding instruments
actually implemented in the public sector.

9. 9
We thereby outline the main features of these innovation-funding measures,
and analyze case studies of “light and fast” funding programmes. We will
address the design of these programme (also with reference to the two
objections spelled out above), and their results in addressing the objectives of
the research and innovation policy.
5 Cases
We selected and analysed the following cases:
1. The Principi Attivi initiative of the Puglia Region (IT)
2. The Global Security Challenge (UK)
3. US government Challenge.gov service (US)
The cases were not selected because they are dedicated to web innovation, but
rather because of their “light and fast” nature. The first is a kind of “small and
simple” funding instruments, while the second and the third pertain to the
specific category of “inducement prizes”.
On each case, we carried out interviews with the main official in charge of the
initiative, integrated by desk research. To provide additional insight, we also
considered evidence on other research programmes such as FET-OPEN (EC),
NESTA (UK), European Research Council (EU), SBRI (UK) and the IBBT
innovation-funding model (BE).4
5.1 The Principi Attivi initiative of the Puglia Region
The Puglia Region is a Convergence Region in the South of Italy. The
objective of the regional government was to activate the innovation capacity
of young people in their region, discouraged by the bleak employment
possibilities. Also existing funding such as the Structural Funds tended to
“play safe” by requesting in-depth knowledge of the rules and economic
soundness of the proposal. Therefore, the funds favoured established players
rather than innovators with genuine new ideas.
Taking into account these factors, the Puglia Region Government launched
and managed in-house a €10MLN call for proposals for micro-projects (up to
€25.000) mirroring the thematic areas of the Structural Funds programming:
-­‐ Environment and local development
-­‐ Innovation
-­‐ Active citizenship and inclusion
The distinctiveness of this call was in its design:
-­‐ Restricted to informal groups of young people could participate (at
least two people below 32)
4
A
full
list
of
“light
and
fast”
innovation
plicy
instruments
is
provided
at
http://www.diigo.com/user/osimod/innovationpolicy20

10. 10
-­‐ Very open, non prescriptive definition of the priorities
-­‐ Simple application process (max. 13 pages form)
-­‐ Open, peer-to-peer helpdesk that enabled the horizontal networking of
participants
-­‐ Transparent discussion of the selection results
And the results were impressive. 420 projects (involving 1279 young people)
were funded out of 1500 proposals. Only 5% of proposals did not reach their
goals but more than half changed their objectives throughout the process.
About 2000 deliverables (products, services, events) were produced. It
comprised a web fiction in 12 episodes, maps in Braille language, patents for
photovoltaic products, reviving computers for non-profit associations. The
variety of services is staggering and reveals the extent to which the initiative
has been able to activate the creativity and participation of citizens.
In terms of additionality, 73% of participants would not have implemented
the project without the funding. What is more, 80% of the projects are still
active three years after the call has ended.
The simplicity, openness and extensive follow-up of the projects were the
secrets of the success. This follow-up was guaranteed by four dedicated staff
members, but could only be implemented thanks to the extensive usage of
web tools that enabled the peer-to-peer networking of participants. The
internal forum had 8000 users who created 11000 messages and viewed 450K
of pages. The forum received 86% satisfaction rate by participants, second
only to the direct assistance of the staff (94%).
When asked if such an initiative could scale up at EU level, the interviewee
answered “Who knows? The only way is trying!”, a sentence which shows the
necessary attitude for such a programme to work. The team running the
programme received a strong “licence to experiment” by its management and
were free to try new solutions outside the comfort zone. It is also worth
noting that the initiative has not been funded by the Structural Funds that
proved too rigid and cumbersome for such an agile programme.
5.2 The Global Security Challenge
In the last years, mostly in the US, there has been an increasing usage of
prizes, rather than grants. Companies and governments have set up
“challenges”, where the financial reward goes not to the best proposals, but to
the innovators who come up with the best working solutions. Examples are
the DARPA challenge (http://www.darpa.mil/grandchallenge/index.asp )
for the self-driving car, or the recent Australian prize for the best algorithm to
identify patient at risk (http://www.heritagehealthprize.com ). More
recently, we have seen an explosion of “apps contest”, born out of the first
Appsfordemocracy.org initiative, where developers compete for prizes by
building web and smartphone apps that help solving specific problems.
Inducement prizes are a very old way to fund innovation: indeed they were
used largely in the 18th
and 19th
century to promote inventions (McKinsey
2009). They were particularly suitable at that time where inventions were
carried out by amateurs, such as the famous “Longitude prize” which saw a
clock-maker winning the prize at the expenses of the established astronomers

11. 11
(Sobel 2005). The professionalization and specialization of science raised the
cost of research and therefore reduced the scope for using such tools.
Not all prizes are inducement prizes: indeed, the majority falls under the
category of “recognition” prizes that reward past achievements. Inducement
prizes instead call for new solutions to existing problems.
One of the modern, high profile inducement prizes is funded by the
“Technical Support Working Group”. TSWG operates as a program element
under the Combating Terrorism Technical Support Office (CTTSO). It funds
defence-related research through a system of grants, organised in multi-stage
selection.
The TSWG co-funds the Global Security Challenge, organised by
OmniCompete. Now in its 6th year, the 2011 Global Security Challenge looks
for new technologies and innovations within the security sector.
This year there are two categories, one for start-ups (embryonic companies,
concept projects or university research projects) and one for SMEs. Prize
grants totalling $500,000 USD are available to the winners.
The submission form is easy to complete with less than 20 questions that can
be answered in one session.
The programme is characterized as a prize, with an open and simple
application, which rewards results not proposals. Cost for participation is
small: it is free, and forms are simple and take ½ hours to complete.
Generally, prizes are a minor part of the total funding of the agency. In the
case of the Security Challenge, about 1% of the budget is devoted to it.
Typically, a challenge includes substantial investment beside the prize itself.
Designing a challenge, organising it, evaluating proposals and ensuring
widespread awareness requires significant investment. According to the
interviewees, non-prize costs can range from 20% to 150% of the actual
reward that is linked to inducement prizes.
The programme is implemented by private company (based in UK) on behalf
of 3 agencies: Technical Support Working Group, Office of Naval Research,
BAE Systems which pool resources to generate greater attraction power.
The programme is fully complementary to existing grant measures. The prize
is designed to reach out to a wider variety of suppliers, beyond the “usual
suspects” which are involved in traditional grant programmes organized by
TSWG. It is also designed as an intelligence programme to monitor security
products and markets.
The key to attract participants is not the money, but the visibility towards
Venture Capitalists and potential customers, as TSWG acts on behalf of final
clients in government. The program is therefore strongly demand-driven.
Jury is composed of government, industry, VCs and academia. The high
profile of the jury is crucial in ensuring the quality of winners, and in
attracting participants.
SMEs and innovative start-ups only are allowed to participate. 20% are
university spin-offs. The incentive to participate is provided by the final
presentation to large number of high level buyers attracts participation

12. 12
Hundreds of attractive start-ups from all over the world participated because
of the visibility: according to ComputerWeekly.com , “You have to attend the
Global Security Challenge to discover really innovative developments.”5
The participation is diverse and global in nature. On average, 42% of
applications originate from universities, 12% from corporate spin-outs, 29%
from unaffiliated entrepreneurs and 17% from other sources. Geographically,
the split of entries was 23% from Asia, 44% from Europe and 33% from the
Americas.
In terms of impact, the main advantage is in reaching out to large amount of
innovative ideas for security, and in generating visibility for these companies.
Several products have then been bought by the final customers. GSC is
effective precisely in translating research into market, as they open up market
opportunities for new products. Secondly, they are designed only for SMEs
and start-ups.
Top contenders from previous competitions have subsequently raised over
$80 million in new capital. For example:
• The Global Security Challenge winner in 2007 was NoblePeak Vision
from Massachusetts, which has developed breakthrough night vision
surveillance camera cores and components. They raised $12 million in
a subsequent funding round, led by Chart Venture Partners of New
York. "Customer interest in our night vision technology soared from the
publicity we received after winning the 2007 Global Security Challenge" said
Cliff King, NoblePeak's Founder and COO. "As a direct result we are
now developing new camera systems with major OEM's for market launch in
2009."
• The Global Security Challenge winner in 2006 was Ingenia Technology,
a UK start-up that developed a novel laser technology to authenticate
documents and products. Ingenia received a significant contract from
a US Federal Law Enforcement agency and launched a partnership
with Bayer AG in Germany. Mark McGlade, Director of Business
Development said: "Ingenia Technology experienced a phenomenal year
since winning the first Global Security Challenge in 2006."
The results are highly promising precisely to address the three issues listed
above: these competitions are able to attract the best innovators, even those
traditionally not engaged with government funding. They reward concrete
results, not proposals. They don’t require complex control systems. They are
able to attract a far superior number of high-quality results than traditional
grant systems. (McKinsey 2010, Stallbaumer 2004)
The key advantage lies in the open approach, which fosters diverse
participation and serendipitous innovation. There's no need to select in
advance from a pool of prospective participants who's the most likely to
produce the desired result. Instead, the competitors determine for themselves
whether they believe they can meet the terms of the prize. As a result,
unconventional solutions, which are often shunned because they are deemed
too risky, are allowed to compete equally against less innovative approaches.
5
http://www.computerweekly.com/blogs/david_lacey/2011/02/reflections_on_r
sa_2011.html

13. 13
5.3 The US government challenge.gov platform
In the framework of the renewed innovation policy under the Obama
administration, the US government has created a dedicated platform, called
www.challenge.gov, to enable the organisation of competition by any
government, and has promulgated the America Competes Act to simplify and
streamline the organisation of challenges by government.
Government agencies can post “challenges” that can be met by any citizens.
The now very promoted apps contests neatly fit in but other challenges can
also be found, such as NASA competition for writing “algorithm to fly three
small SPHERES satellites around the cabin of the International Space Station”.
Challenge.gov is one year old so it seems to be perfect timing for looking back
at its achievements.
-­‐ Technology costs are zero, the platform has been offered by a tech
provider (under a no cost contract), two people are working on it
(mainly on training and awareness)
-­‐ All federal agencies but two have used the platform to launch prizes
-­‐ So far 38 million dollars in prizes have been distributed, including a 18
million dollars prize for Solid State Lighting
Inducement prizes are an effective instrument for crowdsourcing and
collaborative problem solving. Not only “apps contest” but also any kind of
socio-economic challenge can be addressed through prizes. Europe is not
taking full advantage of this opportunity. The America Competes Act and
Challenge.gov initiative in the US are worth considering in order to clarify
how to organize prizes and enable public administrations to use this tool.
6 Analysis: why and how
In this section we build on the case studies to elicitate the key features of
“light and fast” funding instruments. We then analyze to what extent they are
successful in achieving the objectives; and we finally answer the most
common objection.
Based on the findings above, we can already positively answer the second
research questions: light and fast funding instruments can be implemented
also in the context of government funding. In particular, we address the most
common objections mentioned in section 4 and see how they could be
overcome.
Objection 1: they are not allowed by financial regulations: accountability, control and
audit systems make it unfeasible to carry out
This is certainly a well-founded objection. We’ve seen from the cases that
existing regulation hinder the uptake of alternative funding mechanisms. For
instance, Principi Attivi was not funded using Structural Funds because of the
legal uncertainty around its eligibility. In the US, before the America
Competes Act, only NASA was allowed to use inducement prizes to fund
innovation. The existing examples show possible solutions: Principi Attivi
bypassed the problem by avoiding European Structural Funds money,
despite being a convergence region, and chose to fund the intervention with
national funding. The US Challenge.gov platform was created following a

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reform of the regulation on prizes. The America Competes Act states that
“Each head of an agency, or the heads of multiple agencies in cooperation,
may carry out a program to award prizes competitively to stimulate
innovation that has the potential to advance the mission of the respective
agency.” (Senate, 2010. America Competes Act). “Light and fast” instruments
therefore call for regulatory intervention or at least regulatory clarifications
and guidelines that would help convincing administrators of the legitimacy of
the acts.
Objection 2: they are much more labour intensive for the funding agency
The case studies partially confirm this objection. Principi Attivi managed 10
Million Euros funding with 4 full time staff (2,5 M Euros per employee). This
is above the typical ratio for FP project. Interviews with EC officials in charge
of FET-OPEN and of IBBT confirm the resource-intensity of open-ended
projects. All project officers confirmed the need for continuous, in depth
interaction with project managers in order to fine-tune the ideas, but also
underlined how this additional cost was highly beneficial for both the
research team and the funding agency: a hands-on approach which reminds
us of the arrangements between venture capitalists and start-ups.
Furthermore, innovative solutions for monitoring and support have been
developed: the Principi Attivi initiative was able to complement this
monitoring and support service through a peer-to-peer approach through
dedicated online forums, which were considered by participants as useful as
the official support services (Principi Attivi 2011).
Finally, inducement prizes have a very reduced need for monitoring as they
reward the final product, rather than the project proposal.
Objections n. 3: they lack a sufficient critical mass to generate disruptive innovation
on the market
This objection does not appear to be confirmed by the cases. High-profile
innovative companies were featured for example in the Security challenge
and went on to successful market deployment. In Principi Attivi, a project led
to patents for photovoltaic innovation. But more importantly, this objection is
dismissed based on the web innovation model itself, which requires low
capital investment and low barriers to entry. The most disruptive web
innovation such as Google, Facebook and Twitter were deployed with very
little initial investment (Kiskis, 2011).
Objections n.4: small funding lacks a rationale for EU-level intervention since they
are most effective at regional or local level.
One of the key arguments for EU-level intervention according to the Impact
Assessment methodology is the need for adequate critical mass and financial
resources that would not be available at national or local level. Therefore,
small funding is expected to be more local, as if there was a correlation
between the amount of the funding of the single project and the geographical
coverage of the funding institution. Based on the case studies, we argue that
this association is not necessarily true. Inducement prizes such as
Challenge.gov show that global and federal (in the US sense) geographical
coverage is meaningful and effective also for relatively small amounts of
funding. The wide geographical scope is needed to raise the quality of the
proposals, their visibility and the knowledge flows, not only because of the
size of the investment.

15. 15
6.1 Design: the key features of light and fast
Based on the problem analysis in table 1, we present below the key features of
an innovation funding system “fit for the web”. For each feature, we point to
already existing examples.
Small funding
The advantage of offering small grants is in their capacity to reach for high
number of participants: by definition small size grants mobilize a much larger
target population than large grants. A grant of 25.000 Euros in many cases is
sufficient to get innovative web initiatives off the ground, while further round
of funding can be assigned at a later stage. Because of their smaller size, their
social benefits are not limited to the projects funded, but represented by the
much larger pool of applicants induced to generate innovation projects. The
overall cost of the small funding programme represents a minor percentage of
the overall agency spending: 1% for TWSC and the 10 Millions Euros
allocated to the Principi Attivi initiative in the Puglia region are negligible
when compared to overall Structural Funds investment in the region.
Short project time
The activities supported have to be completed in a relatively short period of
time, e.g. only the expenditure incurred within the 12 months following the
date the benefit is awarded. In the case of web applications contests, such as
appsfordemocracy.org, usually 2 months are given for developing the
application.
Open, non-prescriptive and flexible
The programmes do set only loosely defined research domains, often based
on general research direction or on solving specific challenges. While this
approach is traditional in basic research, it can and should be used for applied
research and innovation. This helps not to limit the number of potential
beneficiaries by defining target industries or expected forms of innovation,
thereby opening up to unpredictable outcomes; embracing this principle
means not assuming that the public (state or agency) knows better what will
be the origin of future innovation: the Security Challenge only calls for
innovative products that enhance security. Furthermore, such programmes
accept changes in the course of the project as normal, so that unexpected
outcomes and serendipitous innovation are encouraged: in the case of
Principi Attivi, the majority of projects changed their goals in the course of the
project.
Multi – stage funding
The “light and fast” funding is often just a first step, complementary to
mainstream innovation funding: most of these initiatives manage to attract
subsequent rounds of funding through venture capital, public procurement
(such as in the case of the Security Challenge) and mainstream public funding
(as in the case of Principi Attivi. The initial funding is small and not selective,
while based on the results additional, larger funding is assigned. This limits
the risks and favours ex-post selection of results, rather than ex-ante
evaluation by experts and gatekeepers, thereby lowering the risk for both the
applicant and the funder. Furthermore, because of the low initial selectivity,
unusual solutions are more likely to be funded.

16. 16
While not explored in the context of these cases, we also identify additional
features to be further explored such as the enhanced multidisciplinarity, and
transparent and peer-based evaluation process, and the usage of reputation in
the selection process.
6.2 Participation and impact
In terms of participation, the cases have a strong capacity to attract real
innovators, as the submission process is highly simplified with short project
proposals. Principi Attivi attracts participants that are typically not recipients
of Structural Funds and would not have been able to implement their
initiative without the funding, while the participants of the Global Security
Challenge are innovative SMEs not involved in mainstream research funding,
such as Ingenia Technology (UK). Challenge.gov hosts challenges that are
participated by individual citizens and informal groups, and in particular the
“apps contest” are able to attract individual developers that are otherwise not
interested in participating to traditional research project.
The impact of these innovation programmes in terms of generating
sustainable market opportunities is equally impressive. Out of the 420
projects funded by Principi Attivi, only 5% of proposals did not reach their
goals and 80% of the projects are still active three years after the funding has
ended. In the case of the GSC, top contenders from competitions have
subsequently raised over $80
million in new capital, and to attract large-scale
purchase of innovative products.
7 Conclusions: yes we can
The analysis has covered each of the three research questions.
With regard to the first one, we demonstrated that new funding instruments
are urgent and necessary for European web companies to participate in
research programmes and deliver disruptive innovation on the market.
European web companies are not competitive and the current FP7 is
ineffective to bridge this gap because it is ill designed for web innovation.
With regard to the second one, light and fast funding instruments are
applicable in the government context, not only in the private and non-profit
sectors. There are examples that show this feasibility.
With regard to the third one, we analyzed the key features of such
programmes. However, in order to answer all objections, light and fast
funding instruments require some institutional interventions:
-­‐ in terms of regulatory change, to issue regulatory clarification on how
small funding and inducement prizes could be used within the existing
financial regulations, with the possibility to introduce new regulations
to simplify the organisation of such measures
-­‐ in terms of cultural and management change, to speed up the move
towards ex-post evaluation of results, rather than ex-ante control over
process
This shows that “light and fast” funding instruments are not just a generic
goal for the future, but a feasible option for today. They offer tangible
opportunities to address some of the key challenges of European funding: the

17. 17
capacity to reach out to new innovators, and the likelihood to turn research
initiatives in marketable products. Countries such as the US and the UK have
increased their investment in inducement prizes, and have established
competence centre such as the newly founded NASA “Centre of Excellence in
Collaborative Innovation” and NESTA “Centre for Innovation Prizes”. In
times of tight budgetary restrictions, and after to many evaluation of FP ICT
project highlighting its limits, it becomes urgent to give an honest look at the
effectiveness of the current spending approach and make sure that the
funding goes to the real innovators rather than expert project writers (Osimo
et al 2011). In the recent “Digital Single Market” conference, Esko Aho, author
of the ex-post evaluation of FP6 IST, stated that “if Framework Programme is
the way EC is going finance innovation, we don't have hope”. The
cost/benefit ratio of “light and fast” instruments versus traditional
instruments cannot be ignored.
In view of this discussion, we recommend the following policy actions:
1. the integration of inducement prizes in Horizons 2020, with a 1%
funding for each applied research priority to be distributed as prize
2. the re-orientation of prescriptive research work programmes into open
and challenge-driven funding model, not rigidly divided between priorities
3. the launch of a peer-to-peer support network for project proposals to
be used also in the monitoring and evaluation of on-going projects
4. the institution of a small projects assignment for each funding
priorities, with maximum funding of 25000 Euros, small partnership, also for
informal groups and simplified submission and evaluation mechanisms.
5. The move towards a stronger ex-post evaluation of projects and of
administrators, even after 5 years of the finish, with results of the evaluation
being publicly available and being used to future evaluation of both project
officers and project proposals.
This paper aimed to demonstrates that a radical change in the way innovation
is funded in Europe is necessary and urgent: the combination of the re-design
of Horizons 2020 and of the financial crisis make this moment unique. And it
provides concrete, actionable and low-cost policy actions. In our opinion,
Europe would be better off by simply cutting the funding of web-related FP
projects than by maintaining the current system.
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