Analysis: innovators face structural barriers

The credit crunch is squeezing advice services for technology start-ups, say those at the sharp end, and there should be more support for contract research.

Inventiveness continues to flourish in the UK despite the credit crunch, if the evidence of the recent Cambridge Enterprise Conference is anything to go by. But structural issues are making it harder for inventors to become successful entrepreneurs.

Some of these issues are to do with short-term politics. Others go to the heart of the way that the UK and Europe regard entrepreneurship and innovation.

In the short-term, the credit crunch appears to be reshaping UK government priorities. Walter Herriot, who heads the St John's Innovation Centre (SJIC), a technology incubator in Cambridge, and who could fairly be called one of the midwives of the Cambridge Phenomenon, claims the government has started shifting money away from entrepreneurship. He says that money which the Regional Development Agencies (RDAs) had been channelling through organisations like his to advise entrepreneurs is being redirected to help first-time buyers get on the housing ladder.

"When it was announced, the money for first time-buyers was [presented as] fresh money, but it's not," said Herriot. He says that £300m of spending has been reallocated from the country's RDAs, £20m of it from the East of England Development Agency (EEDA) that serves Cambridge.

"We'll have the best housed yet [most] under-advised people running high-technology companies in Europe," he said.

Herriot says that SJIC has received £40,000 a year since 1990 from EEDA to advise start-ups. It has been used to support an average of 400 entrepreneurs a year, 95 per cent of them approaching the service through personal recommendations or because they have used it before.

"From next March, that money is no longer available," he said, "yet it is in the national interest for these companies to get good advice."

Contract R&D

David Connell, director of TTP Capital Partners, part of the TTP Group, argues that the government should take greater heed of the way that many successful technology companies get started - by doing contract work for others.

"If you look at the technology companies that have been successful you find that, for a very high proportion of them, 'soft start-up' contract research has played a very important role."

He gives the example of Cambridge Silicon Radio, a 'hard start-up' launched as a product business backed with venture capital. "But the team had worked together for ten years developing wireless CMOS chips for customers to hone their technology and to develop their team, so that when the Bluetooth standard crystallised they were well set to spin out."

Connell argues that supporting contract research may be a more effective way of accelerating innovation than backing large collaborations and that policy should reflect this.

"A customer placing a contract for R&D will think very clearly about what they want, which is a good innovation signal," he said. "This is not what happens with collaborative projects in the UK and Europe that are more geared towards large corporations, to the extent that they can end up subsiding their R&D.

"I'm calling for a rethink of collaboration," Connell added. "Policy makers think that encouraging collaboration equals encouraging innovation, and it has become an end in itself. But it is restricting for companies who want to choose the best contractors."

Procurement

The government is making moves towards using contract research to accelerate innovation. It has committed to spending £100m through a new mechanism similar to the US's Small Business Innovation Research (SBIR) Program, which requires 11 federal departments to spend part of their budgets on fully-funded contracts for feasibility studies and demonstrator projects.
The total budget for the US programme is $2bn.

"It turns out to be enormously important for the development of new technology businesses in the US," said Connell. "It is arguably more important than venture capital for early-stage companies."

Connell wants the UK government to use the combination of its massive purchasing power and the clear innovation signals that a contract provides to accelerate the development of technology businesses.

"There's still a job of work to do on this, to persuade government departments to be innovative customers," he said. "Normal procurement in a government department is about minimising risk, so it is not fair to expect a procurement guy to do this. You need to establish a ring-fenced budget for this kind of programme, and have a process champion for awarding those contracts."

He added that the UK might also need a new type of institution to tackle the problems of transferring technology from academia into industry.

"There are very good reasons why universities have difficulty developing [commercial] technology," he said. "They can't take it far enough and they find it difficult to build the kind of small teams that venture capitalists want to invest in.

"Do we need some new institutions that take the best elements of universities with some of the elements of these soft companies in Cambridge to create places that can create new technologies and also take them to market?" he asked. "There is a gap and we should look at whether there is an intermediate style of institution that can fill it, especially for technologies with long gestation periods."

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