Profit Sharing: An Alternative to Stimulate Innovation?

The development of innovations is a costly process, marked by significant investments in research, development, testing, and regulatory compliance. To accelerate the launch of new products and solutions, and mitigate the costs and risks associated with innovation, several financing models have been explored. One such model is profit-sharing, where the government grants resources to research and development projects in exchange for a share of future financial results.

   Governments in general are already, in an indirect way, "partners" of all companies, as they collect and earn taxes, usually anticipated to the profits of the company itself and its shareholders and investors. Why not also participate in investments and risks?

   This approach has many potential advantages. By sharing the risks, the government encourages the private sector to invest in high-risk projects, but with great potential for return. In addition, profit sharing can encourage the development of solutions with social impact, since the government is interested in projects that generate benefits for society.

   However, the model also faces challenges. Defining the criteria for profit distribution can be complex, especially in multi-partner or long-term projects. In addition, evaluating the success of the project and calculating shareable profits can involve bureaucratic and time-consuming processes, as well as an external and independent audit.

   Another relevant issue is the role of the State as an investor and developer. Some argue that the government's focus should be on creating an innovation-friendly environment by cutting red tape and offering long-lasting tax incentives, rather than directly taking on financial risks. But there are services and regions that do not appeal to the private sector, and it is the government's role to take care of these cases.

I believe that profit sharing is a tool that can be used to stimulate innovation, but it should not be seen as a one-size-fits-all solution. It is necessary to carefully evaluate the benefits and risks of this approach, to avoid abuse or fraud, as well as to consider other complementary strategies to foster the development of new technologies, products and solutions that benefit society.

Do you believe that profit sharing would be a good strategy to stimulate innovation in your Country? Why?