The COVID-19 pandemic and Russia’s attack on Ukraine have highlighted the potential risks to one-sided dependence on production in geopolitically risky countries, prompting hasty and sometimes protectionist calls for reshoring of production (Barbieri et al., 2020). Supply chain vulnerabilities, which came to light during the COVID-19 pandemic, involved both technologi-cally more or less trivial goods – such as face protection masks - and very advanced techno-logical inputs, such as semiconductors, giving rise to a pronounced discussion on technologi-cal sovereignty in Europe with the potential to upend the international organisation of produc-tion (Edler et al., 2021).

The firms in IST Cube have not started production yet, but all of them are in the process of de-veloping an R&D intensive, highly complex commercial offering where – when actual market entry draws nearer – issues of supply chain risk are bound to surface. It is in this stage that it will be highly interesting to examine the factors such as capabilities, transaction costs and supplier density that shape firms’ production decisions – initiating own production, calling upon a con-tract manufacturer, partnering with a large firm, nearby or abroad, etc. (Ellram, 2013; McIvor, 2013)

In this work package, we analyse strategic opportunities of start-ups with respect to their atti-tude toward production, market and supply chain decisions. Start-ups consider production, market and supply chain decisions potentially simultaneously and dynamically, as they feed-back on each other and affect the return to innovation. Establishing a stable supply chain network might reduce the risk in scaling production and distribution.

We start this work package with a literature review and build on the data collected in work package 1. As no firm in XISTA's portfolio has entered the market yet, this work package will focus at the beginning on understanding the factors which shape production and market de-cisions of start-ups and how they prepare for such events. Firms' patents will be analysed, whether they can be classified into of the Advanced Techologies for Industry, a kind of EU-definition of general purpose technologies (Iszak et al., 2021). Firms producing such patents will be analysed in more detail, as they are likely to particularly matter for issues of technological sovereignty. We will use the PATSTAT database for this purpose.

If over the course of the project, firms do start production, we can complement our analysis with the actual production event and provide information on firms' experiences with produc-tion entry and supply chain integration. In that case, we will in addition to the material collect-ed in work package1 conduct detailed interviews with the employees responsible for initiating production. Understanding supply chain and production decisions, or factors shaping such decisions, will require a deep understanding of firms' technologies. Work package 2 will hence first produce case studies of innovative start-ups and their production decisions, linking this to the current discussion of supply chain risk and technological sovereignty. It will produce hy-potheses, which can be tested in the second stage, where we will use the information gained from the IST cube start-ups to produce another survey directed at a larger group of innovative start-ups in Austria. The survey will for instance enquire about supply chain issues and produc-tion decisions of innovative start-ups, albeit at a less detailed level than in the case studies from the first stage.

The funding landscape of Innovative start-ups has considerably evolved over the past dec-ades, both as concerns public and private funding (Wilson, 2015). For instance, governments in Europe have added a variety of equity instruments – government venture capital (GVC) at both national and European level via the European Investment Bank – to more traditional R&D grants and investment loans, while private funding sources have added crowd funding in ad-dition to business angel finance or traditional venture capital.

The literature looks both at the impact of different funding sources on the performance of firms, and at the returns – the rewards for risk-taking – mostly for the individual funding sources (see e.g., Cantner & Kösters, 2012; Hottenrott & Richstein, 2020 for public grants; Brander et al., 2015; Florin, 2005 for venture capital). There is much less holistic analysis (see Giraudo et al., 2019) of all the funding sources in combination – of the funding mix -, with the exception of follow-on effects of obtaining one funding source on another funding source (e.g., Berger & Hottenrott, 2021): Public R&D subsidies and venture capital are not independent of each other as venture capital uses the signalling of quality or resource endowment by public R&D subsidies for screening a start-up.

In this work package, we address the questions on funding and returns outlined in section 1 of this proposal based on a literature review, data from WP1 and the model ADAGIO, which can deliver direct, indirect and induced economic impact from firms’ wages and operational ex-penditures.

Analytically, we first build for each start-up a descriptive picture of funding flows and the type of potential public and private monetary and non-monetary returns to them (e.g., type of re-turn for public R&D subsidies – indirect financial through taxes, indirect returns through enhanc-ing the stock of knowledge and contributing to skill formation). For each start-up, this results in a tableau containing the share of different funding sources in total funding needs and the type of returns to be expected. As time goes by, we can build a dynamic tableau, providing an analysis by stage of development of the start-up, guided by our stage-based framework de-scribed in work package 1.

We then put more detail onto the potential returns for public funding by using an economic input output model. The sectoral input output model ADAGIO allows for estimating the direct, indirect and induced effects of expenditures by the start-ups’ workforce and the start-up ex-penditures on equipment etc. These expenditures generate income in other sectors (not least to government in the form of taxes and social security contributions), which in turn is then used for other expenditures, giving rise to a multiple of the initial expenditure by the start-up. This is an additional way of estimating the return on public and private funding of start-ups which does not rely on the firm making profits.

On this basis and using the other data we collected, we can analyse the benefits and returns of different private and public funding instruments for start-ups, be they R&D grants or venture-oriented instruments, and discuss the question of rewards for risk, but also of non-financial sup-port coming with various funding streams.

In the final work package, we draw together our various analytical results from the preceding work packages and reflect on their relevance for policies for innovative start-ups, again fol-lowing our stage-based framework from work package 1, in line with Audretsch et al., 2020, who argue that policies for innovative start-ups need to heed the stage of development of the start-up.

Moreover, our focus will be on a holistic discussion of the various factors at play, not just dis-cussing the implications for individual policies, responding to the calls from the literature to have a comprehensive view on policies for innovative start-ups.

To further structure our findings and compare them to international policies, we will use the At-las of the Global Entrepreneurship Network (GEN), which provides information on policies in various country by filtering them e.g. according to the type of support, the level of interven-tion, the barriers addressed and the geographic scope.

This work package will end with a workshop with researchers, policy makers, funders, venture capitalists presenting and discussing our findings, focusing on what can be learned from the experience of XISTA firms. The work package will not just be limited to narrow policies for inno-vative start-ups, but also include wider framework conditions for entrepreneurial innovation, such as the creation of entrepreneurial opportunities by basic or use-inspired basic research, drawing on the knowledge sources of the firms in XISTA.