Back in April’s Budget the Chancellor announced a £750 million fund for innovation to "stimulate growth in the UK's industries of the future". On Monday, the Department for Business, Innovation & Skills (BIS) made a further announcement – this time about a £1 Billion "fund of funds", seeking to invest in technology-based businesses with high growth potential.
While these two announcements have been warmly welcomed by the VC industry, beware stopping at the headlines - the devil is in the detail!
In fact, this £1 Billion fund is to receive just £100M of the £750M earmarked by the Chancellor for investment in innovation. Other Government departments will be asked to find a further £50M and the other £850M is expected to be invested by the Private Sector. It is not currently clear what, if any, incentive there is for the Private Sector to increase its investment in innovative businesses as a result of this Government intervention.
There remains frustration that no further details have been provided about who can apply for the fund, how to go about it or when the fund will be made available.
This development also raises questions around how the remaining £650 million of the Chancellor's £750M will be spent - no further details have been announced.
Like most sectors of the economy, TMT businesses have been hit by the downturn in the global economy. However over the next three years nearly a third (30 per cent) anticipate growth levels of more than 20 per cent - showing that they are amongst the fastest growing and most optimistic businesses in the UK. This growth is not forecast to come from M&A activity, which has all but dried up in the current environment. Instead, growth is forecast to be generated from investment in R&D to drive innovation.
The funding gap has another critical impact on the UK economy - in the current environment companies are finding that, in order to get the best ‘bang for their buck’, it’s cheaper to go offshore to develop innovative solutions. As a result of the obvious cost savings of offshoring R&D spend, the UK is propping up overseas creative and innovation industries to the detriment of our own. It is therefore vital that the details of how this fund will be developed and announced as soon as possible.
As these fast growing tech companies are the lifeblood of the TMT industry and are likely to be significant drivers of economic growth over the next few years, it is essential that support is made available to them as soon as possible. Therefore we’re calling on the Government to be forthcoming with the details of these funds.
For further information on innovation or R&D in the TMT industry, please email Julian Frost or telephone 0207 893 2350.