Intellectual property and capital: Europe’s untapped potential

The Old Continent generates ideas; it is a hotbed of creativity. However, it struggles to translate these into sustainable economic growth. A central theme in Mario Draghi’s Report on the Future of European Competitiveness¹ is that: the EU accounts for almost a fifth of the world’s scientific publications, but this strength in basic research is not reflected in high value-added innovation markets.

The lag in private investment in research and development is also a factor. According to the latest EU Industrial R&D Investment Scoreboard from the European Commission² , in 2024 R&D expenditure by EU-based companies grew by 2.9 per cent, compared with 7.8 per cent in the United States, 7.1 per cent in Japan and 3.9 per cent in China. Furthermore, for over a decade, Europe’s share of global investment in research has been steadily declining.

The real gap with the United States, however, is most evident in high-tech services. According to an analysis by the European Centre for International Political Economy based on European Commission data, in 2023 high-tech services accounted for over 40% of corporate R&S in the United States, compared with just 15 per cent in the EU³ . The consequences are also clearly evident in the data on businesses. The European venture capital market continues to lag significantly behind that of the US, limiting start-ups’ ability to finance growth and compete on a global scale. When innovative companies manage to establish themselves, they often face a shortage of capital during their expansion phases. According to the European Investment Bank’s report The Scale-Up Gap, after ten years in business, European scale-ups raise on average around 50 per cent less capital than their Silicon Valley counterparts. Added to this is a trend towards the gradual relocation of innovation: between 2008 and 2021, almost 30% of unicorns founded in Europe moved their headquarters abroad, predominantly to the United States⁴ .

The causes are interlinked and well-known, ranging from the fragmentation of the European single market – which remains incomplete in its financial dimension – to the high costs of compliance without any guarantee of equivalent results in terms of competition. But there is a less visible factor that plays a part in this dynamic: the systematic underutilisation of intellectual property as a financing tool.

The economic value of intangible assets
Patents, trade marks, copyright, and designs are no longer merely instruments of legal protection. In the knowledge economy, they constitute a growing proportion of a company’s value, particularly in technology-intensive sectors. According to estimates by the EUIPO – the European Union Intellectual Property Office – these sectors already generate around 48% of the European Union’s GDP and employ almost 31% of the total workforce. Companies that register their intellectual property rights, particularly SMEs, grow faster, pay higher wages and generate greater revenue than those that do not. Yet the European financial system continues, to a large extent, to ignore this asset base. By contrast, the United States, the United Kingdom and Singapore have developed more mature markets for IP-backed finance, transforming these assets into a practical means of accessing capital.

Untapped potential
The EUIPO study ‘IP-backed finance in Europe: state of play and future perspectives’ provides a telling analysis. The credit gap for SMEs in the EU is estimated at up to 365 billion euros a year. Of this figure, between 70 and 150 billion is attributable to intellectual property-intensive enterprises – those which, more than any others, could benefit from a financial system capable of recognising the value of their intangible assets. According to the study’s projections, with an appropriate infrastructure in place, intellectual property-backed financing could mobilise between 30 and 120 billion euros a year in new capital flows.

Yet only 13 per cent of firms holding intellectual property rights have attempted to use them as collateral to secure credit. Several structural factors underlie this situation. The fragmentation of capital markets, the barriers that still exist within the single market and limited experience in valuing intangible assets all reduce the use of intellectual property as collateral. At the same time, many banks and investors still lack the tools and confidence needed to value such assets in a consistent and comparable manner.

The challenges facing EUIPO
To bridge this gap, EUIPO proposes a comprehensive strategy based on five priorities: increasing the visibility of intellectual property assets, ensuring their credible valuation, facilitating access to credit through risk-sharing instruments, strengthening the availability and quality of data, and improving coordination among the stakeholders involved. Taken together, these actions lay the foundations for the creation of a more efficient and fully operational European market for intellectual property-backed financing.

Turning this potential into reality requires change. Intellectual property assets need greater visibility within the financial system. Valuation practices must become clearer and more legitimate. Cooperation between businesses, financial institutions and policymakers is essential, supported by better data and a deeper understanding. EUIPO’s ongoing initiatives, such as the SME Fund, aim to create an ecosystem favourable to intellectual property, supporting businesses and innovation whilst acting as a facilitator. Businesses themselves also have a role to play. Managing intellectual property strategically and integrating it into broader business planning can strengthen their position when seeking finance. In turn, the financial system should be prepared to value intellectual property assets appropriately, using a harmonised valuation methodology.

The report comes at a time when the von der Leyen II Commission has made industrial competitiveness and the Capital Markets Union two of its explicit priorities. The Competitiveness Compass, presented in January 2025, provides a favourable context for a change of pace. The issue, as is often the case in Europe, will depend on political will and the capacity for coordination amongst the 27 Member States.

Europe does not have a problem with ideas; it has a systemic problem. The challenge lies in transforming knowledge into capital and capital into growth. As long as intellectual property rights, such as trademarks or designs, remain excluded from ordinary financing mechanisms, a significant portion of Europe’s innovation potential will continue to go untapped. Or, more often than not, the necessary resources to develop will be sought elsewhere.