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Tag: government

Let’s start manufacturing – new TSB strategy announced

At last the Technology Strategy Board has published its new strategy for High Value Manufacturing.

Their definition of HVM is very much allied with ours:

High value manufacturing is the application of leading edge technical knowledge and expertise to the creation of products, production processes, and associated services which have strong potential to bring sustainable growth and high economic value to the UK. Activities may stretch from R&D at one end to recycling at the other. Such potential is characterised by a combination of high R&D intensity and high growth.

And they focus on 22 competences, grouped into 5 strategic themes:

  • resource efficiency
  • manufacturing processes
  • materials integration
  • manufacturing systems
  • business models

Reading through this document and the accompanying Cambridge Institute for Manufacturing study, there is a lot of sense here, but I’d argue also a number of important omissions and (dare I say it) fashionable hobbyhorses.  For example, I feel that the UK has world class competences in metrology, measurement systems and analytical instrumentation.  These competences can enable leaner, more resource efficient and less costly manufacture.  This doesn’t undermine the overall thrust of the IfM’s argument, but I hope that the TSB will be open to a healthy debate and ongoing refresh of these 22 competences.

At Qi3 Accelerator, we use the phrase High Value Manufacturing to encompass the ‘real world’ of engineered products and associated services, including those destined for sectors such as aerospace, security, defence, space, medical and environmental.

Let’s see how this new strategy for HVM is backed up by actions that will make a material difference to the rebalancing of the UK economy towards making things.

 

Make Business Your Business – Lord Young report

Here’s the Lord Young report that nobody could find yesterday 12-827-make-business-your-business-report-on-start-ups

Lord Young’s report, Make business your business, shows that if we had the same rates of entrepreneurship as the US the UK would have 900,000 more businesses.  He sets out the strength, diversity and growth of small businesses in recent years, a clear contrast to the Bolton Report of 1971 which predicted small businesses were in long-term decline.

Happy reading – let me know what you think.

Breakfast at Number 10: Part 2 – Enabling business success

The second part of this update focuses on enabling successful sales growth for innovative businesses.

My discussion with Lord Young and question in the plenary session was focused not on investor tax breaks, but on how government can encourage smaller companies to become more successful in their sales efforts:

In public procurement of innovation, the Small Business Research Initiative seems at last to have found a nurturing home in the Technology Strategy Board. But it’s still a small scale initiative for a few public bodies, rather than a mainstream driver of innovation in procurement.  The US requires Federal Agencies with extramural research and development budgets over $100 million to administer SBIR programs using an annual set-aside of 2.6% for small companies to conduct innovative research or research and development (R/R&D) that has potential for commercialisation and public benefit.  The total UK expenditure meanwhile is a few £m per annum

In public procurement (OJEU) there are systematic barriers to SMEs.  Most ubiquitous is the use of prequalification processes where companies are required to demonstrate evidence of 3-5 similar contracts.  This is a blatant stifling of innovative approaches.  Lord Young agreed that there is much to do in this field, and stated that central government contracts under £100k have dispensed with prequalification. SMEs make up 50% of UK GDP, but only 12% of public procurement.

These issues must be taken more seriously. The UK is a small home market for technology businesses, many of which would be better located in the USA. Investors like us need our investee companies to become successful through rapid realisation of their sales prospects. That’s why we started Qi3 Accelerator. It’s vital that where government can make the UK a better test-bed and first marketplace for new technologies that it should do so through disruptive, not incremental steps.

Breakfast at Number 10: Part 1 – Encouraging investment

‘Angels, your country needs you!’

Well it wasn’t ‘Breakfast at Tiffany’s’ although there was plenty of silver on display. I was invited to a business summit for angels and entrepreneurs at Number 10 Downing Street on Friday.  I suspect that my inclusion on the guest list resulted from interest in Qi3 Accelerator’s new model for investment in High Value Manufacturing businesses.

David Cameron spoke about his drive to make the UK a great place for companies to attract investment and grow. Like Kitchener, he exhorted us with the words ‘Angels, your country needs you!’ Having just climbed the famous staircase featuring portraits of all 73 of Britain’s Prime Ministers, it was clear that this was a place in which such a statement should be taken seriously.

He went on to highlight the tax incentives for investors introduced over the past 2 years:

  • increased the rate of income tax relief for the Enterprise Investment Scheme (EIS) to 30 per cent to encourage more equity investment in start-ups;
  • doubled the investor limits to £1 million per year from this April;
  • launched the new Seed Enterprise Investment Scheme (SEIS), which provides 50 per cent rate of income tax relief for individuals who invest in new early stage businesses; and
  • from April, for one year only, to kick start the scheme there will be a capital gains tax holiday, so gains can be re-invested into start-ups and be exempted from capital gains tax.

Whilst I’m not yet fully convinced by the details of SEIS, there’s no doubt that a 50% income tax and 28% capital gains tax relief makes for an extraordinarily generous attempt to kick-start seed investment at the £150k level.  I shall certainly be looking for an Accelerate to Investment seed opportunity right now.

There were numerous questions from the floor about the details of the EIS tax relief. This is a superb scheme, but definitely requires simplification and specific extension to enable investor directors to benefit from EIS-able share options.

Lord Young in his talk emphasised that now is a great time to start up and grow businesses. I heartily agree with this perspective.  Whilst others are locked in corporate stasis and gloom, it’s the time for up and coming businesses to defy recession and go for growth.

Other speakers introduced the Angel CoFund, Business Coaching for Growth programme and the Business Growth Fund, which is aimed at growing businesses that have already reached £5m annual revenues.

Of course the real-life war stories from Giles Palmer (Brandwatch) and Dale Murray (BBAA Angel of the Year 2011) brought humour and reality to the morning. I especially noted Dale’s remarks on a ‘bad angel’ who had sought to seize control of her business.  The event was attended by several MPs and ministers including David Willetts (Universities & Science) and David Gauke (Treasury).

Whilst the event tried to cram an awfully big subject into a 3 hour session, the politicians impressed me with their openness and willingness to listen. They repeatedly encouraged direct input to Lord Young’s programme.  It was evident that the newly launched Angel CoFund, the Business Growth Fund and the new Seed Enterprise Investment Scheme are all direct outcomes of input from the British Business Angels Association and other bodies.  Anthony Clarke at LBA/BBAA has clearly maximised the lobbying power of this community, amongst a bewildering array of angelic acronyms and organisations.  Somehow, even Angela Knight, the voice of the British Banker’s Association (BBA), seemed to think that banks have something to offer through mentoring, if not money.

Even more important was the understanding that finance and tax incentives are necessary but not sufficient to kick start this part of the economy.  Companies need to be able to access the skills and support of experienced businesspeople and specialist mentors if they are to be able to recognise and achieve their full potential.

Capturing the vital six per cent

A recent NESTA report focuses on the 6% of companies in the UK that exhibit high growth rates of over 20% in a year.  These 11,000 businesses are responsible for over 50% of new job creation, vital in these days of austerity and high unemployment.

Interesting findings are:

  • High growth doesn’t just result from technological invention.  High growth businesses are spread across many sectors
  • High growth mainly comes from businesses over 5 years old

Of course, the skills, ambitions and characteristics of  owners and managers is the key.  Entrepreneurial attitudes towards innovation in technological and business processes correlate with growth performance.

The report’s conclusions are sadly somewhat more public sector focused and predictable.  It argues that government should:

  • Remove regulatory obstacles to growth
  • Support ‘access to finance’ through measures such as co-investment funds
  • Develop a skilled workforce
  • Support flows of knowledge and collaboration
  • Improve demand for innovation by harnessing the government’s own £200bn annual spending on products and services

That’s all very well, and it’s hard to argue with much of this.  But (and you should have felt a ‘but’ coming) I have some concerns about this approach:

  • Government is extremely bad at removing regulation – look at the discussion over the past weeks about the impact of April 2011’s new regulations on microbusinesses.
  • I’m a huge fan of using government’s expenditure to favour innovative solutions, but with the laudable exception of small amounts of SBRI funding, the drive in government procurement is leading towards favouring large businesses through a series of insidious barriers to entry.
  • Tax isn’t mentioned.  Whilst the new government is encouraging entrepreneurship and risk investment, entrepreneurs face considerable penalties for earning above average salaries.
  • Most importantly, the NESTA report focuses its recommendations on the supply side (government intervention).  I feel that it should be rather more focused on what makes people want to put themselves out on a limb, move out of their comfort zones and grow their businesses.

Anyway, I’m off to try to find another one of those 6% of businesses to invest in.

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