Monaco is a land of innovation. It is the very essence of development and economic stability in the Principality. For more than 150 years, Monaco has made a series of bold and innovative decisions demonstrating its incredible spirit of enterprise and constant ability to reinvent its economic model. Monaco as we know it today was founded in 1861 after the loss of 90% of its territory. Faced with this critical situation for the Principality, Charles III decided to entrust François Blanc with the creation of the Casino of Monte-Carlo in 1863 and design a unique economic model to ensure steady development for the state and the population. Since that time, the successive Princes have continued to develop Monaco by keeping its economy in step with the major international movements and allowing it to prosper - scientific research (Albert I), tourism and sport (Louis II), property and the banking industry (Rainier III). In line with this tradition, His Serene Highness Prince Albert II outlined his vision for Monaco in his investiture speech. The future of Monaco is based on three elements: attracting talented individuals and investors, training for young people abroad, and a culture of risk taking. His vision is particularly relevant because for the past 20 years and since the arrival of the internet, the established patterns have been turned upside down.
The difficulties of the modern world lie in the fact that innovation cannot come from the state alone. Technological complexity and international competition today have resulted in the need for new autonomous ecosystems for innovation suited to local situations. These ecosystems are based on entrepreneurs and result in collaborative and virtuous relations between four types of players: the public authorities, entrepreneurs, large companies, and investors. The mindset, success and failures of these ecosystems allow a culture of innovation to prosper. For the past ten years, with the crisis that has hit the world’s economy, a major transformation has begun with new financial regulations and an extremely rapid technological revolution whose impact on our everyday lives is still far from fully understood. With this in mind, the public powers need to provide the conditions to allow an ecosystem not only to emerge but also to prosper and serve the specific characteristics and support its economic development for the century ahead. If it hadn’t already been invented, the concept of leading from behind would be perfectly suited to the modern state in terms of innovation - providing a favourable framework and encouraging rather than driving innovation.
This unusual situation is a wonderful opportunity for the Principality to capitalise on its untapped potential. Monaco is already a showcase for niche technological sectors and has an excellent network of successful entrepreneurs willing to invest their time and resources in ambitious projects. Monaco is also an international business market with nearly 140 nationalities supported by strong public and semi-public entities. Above all, Monaco will benefit from the creation of qualified jobs providing attractive career opportunities for its educated youth, as well as an improved image and attractiveness specifically for entrepreneurs and investors, creation of added value and, in turn, revenue for the state. In this respect, New York is a particularly good example. For the past ten years, New York has led a pro-active policy to create 7,500 startups that generated $125 billion and 58,000 jobs.
If this is the desire of the public authorities, Monaco is agile enough to set up a strong ecosystem almost instantaneously. The creation of MonacoTech and the appointment of an interministerial delegate for digital technology demonstrates that the change has already begun. These signs could however be accompanied by measures to encourage innovation and make the Principality a major market for risk capital.
For all of these reasons, it is now urgent in Monaco to create an ecosystem for innovative projects by establishing a legal and administrative framework for their sustainability. To achieve this, we not only need to attract creators but also encourage and support investors.
Providing a legal and administrative framework to encourage innovative enterprise
The creation of MonacoTech has allowed for innovative entrepreneurs to set up in Monaco with support in the form of a Pass Startup Programme designed to support and integrate the entities selected by panels held by the Startup Programme.1 The system provides the startups hosted by MonacoTech with an administrative ‘existence’. This is however limited to the incubation period. Once it is over, it is worth looking at what conditions are needed to support these innovative companies in Monaco. The techniques used by MonacoTech would be ineffective if those startups were forced to head abroad in search of the conditions needed to allow them to flourish. Basically, an incubation programme can only be effective if it is accompanied by a strategically adapted ‘excubation’ service.
To go one step further, one option would involve creating a type of simplified stock company in Monegasque law that draws on the changes made to the French société par actions simplifiée (1994). The type of company could be limited to innovative companies and for a period of no more than ten years. The status of JEI (young innovative companies) in French law, limited to seven years, provides a corporate and legal framework suited to the issues faced by innovative companies. The structure, subject to prior approval from the Economic Expansion Department, could be formed as a sole trader or multiple-member company. It would resemble the Monegasque limited company (société anonyme) structure, but with a certain number of exemptions providing the greater flexibility needed by innovative companies.
We already know that in the offices located in the immediate vicinity of MonacoTech, the government has decided to set up an incubator, which is likely to be named Monaco Boost, to encourage entrepreneurship among young Monegasques, and help them not only get ahead but also keep those companies that benefit from the MonacoTech program within the Principality.
One of the measures could include the waiver of the minimum capital requirement, as well as the optional use of the shares auditor.
The articles of association of such an “innovative limited company” could be used to distribute power within the company by determining decision-making policies and conditions.
The company could, for instance, issue inalienable shares, submit all transfers of shares to the approval of the company, or allow a partner to transfer his/her shares on a predetermined date or have the non financial rights suspended.
The articles would determine the board of directors and their roles, as well as the type and class of shares issued (shares with single/multiple voting rights, shares with priority dividends).
The board of administrators’ roles of a Monegasque limited company, or those of its CEO, would be carried out by the CEO of the simplified limited company whose conditions for dismissal could also be determined in the articles.
The innovative limited company would allow the founders of the company and investors to agree on how best to organise the power and financing within an open and dynamic structure.
Providing specific rules for investors
There can be no innovation if there is no funding for it. But in order for it to be effective, it needs to come at the right time and in a form that allows for a balance between the legitimate desire of the innovator/inventor/designer to keep control over the creation, and the protection of the investment, and even a certain amount of risk management by the investor.
The freedom of a single-member limited company strikes the balance between the competing interests of the designer and investor (variable capital, shares with priority dividends, shares for double voting rights, etc.).
In order for the investment to come at the right time, it needs to be made more quickly because, for startups, there is a fine line between lift-off and crashing. Growth generates financial unbalance that requires fast access to funding. When first starting up, new companies are fragile and funding needs to be mobilised within a matter of weeks.
Another aspect of investment in innovation is that of risk management. This can be done using two techniques: (a) the investor’s involvement and control over the project, and (b) risk management
The investor’s involvement assumes that s/he is a professional investor. “Business angels” need specialists in structural fields they do not fully understand (law, management, financial analysis, marketing, etc.), which are by nature lacking in the startups they intend to invest in. After all, startups tend to channel their resources towards creation rather than support functions.
This leads to the question of creating companies that would own stakes in innovative companies in Monaco or abroad. They would actively exercise the rights linked to these stakes (e.g. appointments to the board of directors). They would host the legal, accounting, marketing and support services for subsidiaries and could charge management fees in return.
Another subject concerns the sharing of risk. This can be done informally, when several entities invest as a group, but it is more effective when based on financial vehicles such as mutual funds (FCPI , SCR , SICAV , etc.).
Encouraging the creation of these financial vehicles in addition to the legal and administrative framework for innovation would make Monaco a major player for select innovation sectors, and a strategic choice to lay the foundations to establish an industry of financial vehicles and investment funds for innovation in Monaco. This could represent a new industrial branch alongside tourism, property and private banking.
