I read two interesting innovation funding related articles over the bank holiday weekend.
The first was by Matthew Lynn in the Daily Telegraph, titled ‘Recovery depends on killing off more zombie companies’. The other was a summary of a recent study by Agility in Mind about the impact of Rishi Sunak’s ‘Help to Grow’ scheme on SMEs.
Matthew’s point is that, whilst there is no doubt that the British economy has become more entrepreneurial even during the pandemic, evidenced by,
- Start-ups received more than £11bn in fresh venture capital in 2020 – the highest level on record
- In the first quarter of 2021, new incorporations were up by a record 24% (4.5m private companies)
- Government support programmes such as the Future Fund and its follow-up, the Breakthrough Fund
- 81 Unicorns now exist in the UK, more than France, Germany and Sweden combined.
the problem is that the old companies are not making way for the new ones at the rate they used to.
Figures show that the overall level of corporate insolvencies is down to levels last recorded in the 1990s, and running at half the rate of the last big recession in 2008-2009.
The reasons for this are clear. Since the pandemic began the Government has launched scheme after scheme to keep companies afloat, no matter what difficulties they may be facing. And all that comes against a backdrop of low interest rates.
The result is the creation of a legion of zombie businesses kept artificially alive on soft money and government support – running businesses certainly hasn’t become any easier during the past twelve months, so this is the only credible explanation.
Matthew believes that we need the old companies to disappear as new ones emerge, so that capital is freed up, resources are made available and tired business models can be replaced with fresh ones. How? – by withdrawing furloughs, rate relief and soft loans from struggling firms.
Help to Grow
In the context of the above, Rishi Sunak’s ‘Help to Grow’ Scheme appears to fall between two stools.
Rather than specifically ‘shoring up’ companies in difficulty, the Chancellor announced the £520 million scheme in March, offering 130,000 SMEs the chance of MBA-style management training by providing access to some of the UK’s top schools. The 12-week programme kicked off in June this year, with Mr Sunak stating that the scheme would “help over a hundred thousand businesses become more innovative, more competitive and more profitable.”
In other words, the scheme was aimed at ‘Building back Better’ – encouraging existing companies to become more innovative (a key Government priority), as opposed to just relying on the new start-ups.
However, the Agility in Mind research found that a quarter of UK businesses know nothing or very little about the ‘Help to Grow’ scheme, and a further 39% said that despite being aware of it, knew nothing about the details. 500 senior decision makers in UK businesses, excluding sole traders, took part in the poll.
According to the study, UK business decision-makers were more concerned about increasing productivity in their workforce, rather than improving their leadership and spurring innovation in a post-pandemic world. Business leaders did not list leadership or innovation as top priorities when it came to growing their firms in the next year, the research showed.
What this also reveals is a lack of understanding of what Innovation means – process innovation, for example, is key to achieving productivity improvements, but people don’t generally see that as Innovation.
To Stick or Twist
We have a clear problem to address. The Government is committed to increasing the UK’s spend on R&D to 2.4% of GDP.
To achieve this, we can’t rely just on the new start-ups to deliver this. We must sort the wheat from the chaff in terms of our existing industry base, and refocus our support to the companies who are or have the potential to innovate, for example the c50,000 who currently claim R&D Tax Credits.
It is now time to adopt a more proactive approach to analysing, segmenting and prioritising the businesses we need to support.
The Infintec Qualifier Process
At Infintec we only work with companies with innovative technology, who have the potential and desire to grow faster.
To achieve this, we have developed an innovative, fast-track process which starts with our Qualifier (or Discovery) process. This really does sort the Wheat from the Chaff, leaving us with clients who we can work with to acquire the Innovation funding they need and achieve their growth potential.
Many companies who have had to take advantage of some of the Government support schemes still have great potential, others clearly don’t.
So, if you don’t want to turn into a Zombie, and believe you have potential, then why not contact us and discuss your vision for the future.
Iain Gray 07791 139558