It may well be that NESTA, the UK’s National Endowment for Science, Technology and the Arts, will oversee a £1bn emergency venture capital fund aimed at pre-revenue technology start-up firms. But no-one at the body seems to be answering their email this morning. And email from three of the key “VCs” there (or the equivalent of the people who greenlight investment) is bouncing back. Meanwhile, no words as yet from Nesta chief executive Jonathan Kestenbaum on how this fund actally be managed.
[UPDATE: NESTA eventually got in touch, see comment below]
However, what we do know from the Observer’s report - a handy Sunday newspaper item, which is always a great create way to create political capital for the politician that leaks it - noted that Lord Drayson thinks this new fund will “form the centrepiece of a dramatic shift in industrial policy which will see more intervention from government.” Flourish, flourish!
The cabal that cooked this up was NESTA, PM Gordon Brown, Drayson and Lord Sainsbury.
But is this “new” money or is it existing money which will just be more quickly distributed? The report alluded to “the doubling of government funding for scientific research at universities, which has led to an increased number of spin-outs in IT, biotech, nanotech and green technologies” but that this “will count for nothing if money is not quickly distributed to them.” The devil as always is in the detail. The plan will be “formalised early in the new year”.
Perhaps it is new “real money”? They will be looking for cash from the private sector including private equity, universities and mainstream business. All sectors which will simply be awash with cash in the new year, I am positive… Private equity will of course be falling over itself to invest in schemes which will be overseen by the government’s grey suits and provide little incentive for the Limited Partners that back VC houses. Oh yes.
And yes, ok, so the post-war Labour government created 3i to provide risk capital to growing businesses. But 3i long pulled out of startups. Has no-one noticed this?
Personally I agree with those, like Broadstuff, that advovate the allocation of cash towards early-stage companies, and put what money this fund raises (if any) into small batches which are spread around. In particular should create 2/3 person teams who can build beta companies. These companies will need to pitch, just as they would on the TV show Dragons Den (in fact, culturally Dragons Den may prove more useful than we thought), to a body of people who know startups. Avoid, at all costs, allocating this cash to regional funds administered by pen-pushing civil servants, the woeful Business Links and local authorities.
So, put this cash into beta startups. Put £175,000 into 8 million startups not £2m into a few thousand.
Mike, I’m so glad you are there to ask the hard questions - even if it’s hard to get them answered. Totally agree with your take on this - it’s something cooked up for political effect. What it will transform into on the ground is anyone’s guess - if it transforms into anything. My guess is that whatever funds are available through this will indeed be captured by the lamentable ‘Business Links’ industry and channelled to the usual suspects.
We’ll see what emerges from the spin in January I guess! Spot on with the comment re: 3i. And I’d echo Alan’s thoughts on Broadstuff that it should be used as seed money to kick off innovation that can be commercialized, and which directly creates new jobs in start ups.
It would be folly to waste it on propping up companies that were going to fail anyway, although I understand and agree the logic about providing bridge funding for companies that have already been funded.
I whole agree with the concept of spreading the money across many companies. However, the only downside to putting it in 8 million startups rather than a few thousand is that I fear much of the money would be lost in ‘overheads’ in distribution.
I was at the NESTA event on Thursday where Lord Drayson mentioned the £1bn fund. In regards to :
….“new” money or is it existing money which will just be more quickly distributed?
There was no mention of it being an existing fund. From memory Lord Drayson said that they are in discussions and this was his priority. There is an audio of the event available:
http://www.nesta.org.uk/assets/Uploads/mp3s/innovation_in_the_downturn/innovation_in_the_downturn.mp3
“put this cash into beta startups. Put £175,000 into 8 million startups not £2m into a few thousand.”
Completely agree that this should be a seed/early stage fund. With 175,000 pounds you should be able to get nearly 98% of all tech startups off the ground to a point which is investable by the majority of early stage VC funds out there. This is especially true if these startups are put through rigorous process which helps them, means they don’t make many of the earlier (easy) mistakes. For example:
Accounting help: Paye, bookkeeping, banking
Legal help: IP assignment agreements, Contracts, term sheets,
Structural help: Share structures, options pools, corporate governance (how to best project manage a team of coders)
I suppose this would be a semi incubator, but even if it was just a test when applying for the money to see how much the entrepreneur really knows and has experience of, which could then be used to provide him/her with any extra help needed.
Erm, I mostly agree with what’s being said.
But…
I don’t think all of the money should go into start-ups. By their very nature they are the highest possible form of risk and surely, if we’ve learnt anything over the last few months, putting all of your cash into the riskiest investments can lead to tears before budget-time.
I’d advocate a 3-tiered approach, someone much smarter than we should figure out how the amounts should be split down:
Start-ups
A substantial chunk of cash to fund start-ups, to support through through incubators and other support services e.g. the scheme at Westminster University out in Harrow and the Institute of Digital Innovation on Teeside which have both generated companies and provide lots of support.
Intelligent use of the crowd’s wisdom wouldn’t go amiss and these folks tend to be well plugged in to the more traditional sources of advice like Business Link and many of the newer virtual groups, too.
Supporting SMEs
Providing growth capital for smaller business through R&D schemes, support for intern programs to help cross-training and bringing graduates into the knowledge economy which would otherwise be out of reach of these companies. Supported through universities and local advisors who could help run and structure these programs.
Plus, and most importantly, expansion of the Small Business Loan Guarantee Scheme slicing through the red tape and making it feasible for a wide range of businesses to take part. We pretty much own the banks these days, so getting them to take part in this actively should be less of a stretch.
Other support for tax breaks for smaller companies - without overseas tax havens and a phalanx of lawyers, smaller companies get stung for more tax while larger ones better able to pay it manage to wriggle free.
Government help should be expanded for companies looking to expand their markets outside of the UK through trade missions, help internationalising their profits and also defining the UK as a centre of excellence for all things digital.
Research & Development and Social Enterprise
We know the open-source movements and the development of standards have changed this industry beyond measure. Now’s the time for the government to support these movements not with tonnes of cash necessarily, but with grants to allow some of the great technicians about to spend quality time on projects that support the industry as a whole but don’t generate direct profits on day one.
And in the process of doing this, the academic sector needs a royal kick in the butt. The way courses and structured and delivered needs to be radically updated so they’re up-to-date when deilvered, connections with industry are built-in from day one rather than an after-thought.
Further on this tack, there should be funding available for older companies to spin-off new ventures into start-ups as we know it’s almost impossible to innovate within large-scale older companies. Some cash plus support from the originating company but a hands-off approach would unlock some of the massive IP that these companies are sitting on.
Holy monkey. I didn’t mean to get on quite such a rant. I’ll go and lie down now.
Sam,
most of what you suggest has been done for years. It has pretty much all failed. It sounds good, but it doesn’t work. For example, Business Links show no determinable benefit to the business landscape. They cost us in excess of £1bn per year. The vast majority of programs aimed at SMEs that are not start-ups (meaning older companies) has failed miserably. If you are, for example, a ten year old small company and you need ‘help’, then I am sorry to say that you probably don’t deserve any cash.
R&D schemes for start-ups work reasonably well when they are demand-led. A good example are the US ones (e.g SBIR). Nobody in the UK government/administration that I have ever met likes these kinds of programs. They are just too much work. But they would work really well. (and there is plenty of data that proves that, too)
Direct investment programs have more or less failed the world over. I have no idea what makes people believe this will change now. Indirect investment programs (e.g. found funds that invest in start-ups_ work pretty well. But then somebody else gets all the glory and not the politicians…
Let’s hope NESTA does something worthwhile with all the money. If they manage it like the £300m that they already manage, then this should quadruple their firepower. Looking forward to seeing them close that fund!
If this money is for real, it could be just the kick-start that Social Innovation Camp projects need (http://www.sicamp.org/ - 2nd camp happened this weekend).
That would be a double-win; tech startups with a positive social impact.
But like you & Broadstuff say, only if it’s agile seed money and not suit-strangled. I’ve seen too many social startups struggle with that already…
dan
Mike - in my email response to you this morning, I sent you further details of NESTA’s recommendation (to be published later on this week).
To clarify, this is a recommendation. The Government will need to decide whether this is new money and who will run the fund.
In our proposal, we suggest the fund is aimed at high-potential, innovative, early-stage businesses suffering from the effects of the ‘equity gap’. This would be sub £500,000 amounts, with a target level for first investment of between £250,000 and £500,000. We would further suggest that the fund operates on a strictly commercial basis.
The suggestion for a £1billion fund emerged from a report we published last Thursday, called ‘Attacking the Recession’. You can read the full report at http://www.nesta.org.uk/attacking-the-recession/
Chani Hirsch, Head of External Relations, NESTA
£250,000 as a minimum investment is too high.
I think a bunch of early-stage companies would be able to develop working prototypes and better understand feasibility with a fraction of this.
Not saying that there aren’t plenty of companies that would benefit from this level of funding, either, but earlier-stage investments are needed, too.
To be fair to NESTA they do already back Seedcamp.
@dan and sicamp too btw.
As Chani says above, it’s worth clarifying that it’s not ‘our fund’ per se rather the suggestion emerged from a report we published last Thursday, called ‘Attacking the Recession’. We also called for the Government to accelerate the connection of the entire country to ultra-fast broadband but that didn’t get picked up as widely.
Some really great points made above and I’m definately in support of “Put £175,000 into 8 million startups not £2m into a few thousand” but I will shout this from the rooftops: it doesn’t matter to me whether this opportunity is born from new money or old, it exists!, what matters is what it is actually for.
The Nick Mathiason Guardian.co.uk story suggests it is to “Throw a lifeline to technology start-up firms” but I’m trying to get my head around if this is to kickstart the economy or deliver ‘true’ and ‘positive’ innovation for the future. With innovation and creativity come ‘mistakes’ and ‘lessons to learn from’ - the more ideas you back the better the odds of a winner - a quick financial return is less likely - but more lessons will be learned and more possibilities are likely to be generated.
Funding technologies that fuel lifestyle product development and sales is likely to support the economy short-term (and entice the traditional Bank/VC tickbox for investment) but I fail to see how it might solve anything in the long-term.
Funding technologies and startups for positive social change and ‘environmentally’ clean technologies is a more sustainable investment but its less likely to match up to the traditional ‘white colar’ investment vs financial return measurables.
Seedcamp is a fantastic launchpad for Startups but from what I’ve seen even it runs under the traditional financial model of ‘investment vs financial return’.
I suggest that true innovation comes from belief and passion, not financial gain - if you offer a company £500,000 to develop an idea they will flitter it away on wages, overheads and bells and whistles, if you offer the right person £100,000 they will live in tent, make it work, user test it, and prepare it for VC investment.
I simply ask - will investment feasibility be determined by £ or value ?
As much as I would like to see tech start ups get a helping hand to get off to the races, I am not sure I want to be funding this through my taxes. For a start, what would be the cost of making 80,000 separate investments, let alone 8 million. The questions asked of the LDA, Lee Jasper et al demonstrate how hard it is for publicly funded bodies to write cheques to small private enterprises. The best investors are private individuals and institutions who are risking their own cash.
Much better for the whole economy would be measures to make it easier for companies to offer employment - e.g. cut in the rate of employers’ National Insurance contributions (currently 12.5%), make it easier for people who are made redundant by increasing the tax free allowance on redundancy payments (currently approx £30k) , or make it easier to buy and sell companies by abolishing stamp duty on share transfers.
I’m also in favour of government backed schemes such as G2i, whose mission is to provide specialist and targetted information and training, or UKTI initiatives to assist companies build export opportunities, as these are not easily replicated in the private sector.
I know capitalism is rapidly going out of fashion right now, but remember one of the three biggest lies is: “I’m from the government and I’m here to help” after “the cheque’s in the post” and “I’ll respect you in the morning”.
*note, I am excluding social purpose start-ups from this, where the public sector clearly has a bigger role to play*
Following on from “put this cash into beta startups. Put £175,000 into 8 million startups not £2m into a few thousand.” I think there would be value in slicing this even further into £25K chunks.
An approach to making this workable might be to first invest in the creation of some standardised open source legal docs. These ones available to US startups are designed to be balanced fairly for investors and founders: http://www.ycombinator.com/seriesaa.html
NESTA could then agree to match or provide 2/3 of a first round of investment when an angel agrees to invest on those terms. The angels would do the job of assessing the viability of the start up and none of the investment cash would need to be wasted on admin or legal fees. Later rounds of investment from the same fund would also be far easier and cheaper as all the legal work could be standardised.
Judge and party is not good corporate governance. Matched funding is not a bad idea, a short-term rescue fund may help us deal with market disclocation. I was on a plane so missed my chance to comment meaningfully and wrote my own angry blurb
A great time to waste public money !
I am reading this as 9 zeros not 12.
It is easy to look on small investments as sufficient in the Tech field when there is an incredible infrastructure of support.
Without that support already in place, then frequently cutting corners leads to inefficiencies in execution.
You can invest a small amount in a brilliant team for a great idea and it will still pay off, but more money would certainly bring that about faster.
The Dragon’s Den is an interesting phenomenen because of the wonderful synergies the Dragon’s bring to the businesses they invest in, which is probably more added value than a typical angel or VC arrangement.
On the Dragon’s Den, it is never a case that only 10% of the businesses make money, to compensate for the rest.
http://liginmaclari.blogcu.com/10-aralik-carsamba-dinamo-kiev-fenerbahce-sampiyonlar-ligi-macinin-golleri-dinamo-kiev-fenerbahce-sampiyonlar-ligi-macinin-gollerini-izle-dinamo-kiev-fenerbahce-sampiyonlar-ligi-macinin-gollerin-ozet-goruntuleri_30773341.html
has anyone got experience of approaching nesta - any tips? If new funds awesome but hope they dont blow it on “social” ideas from people who have no clue how to monetise anything.
also what about web 2.0 graveyard - that must be getting pretty packed!
Excellent discussion. Must admit I’m a little skeptical of whether this money’s going to materialise, though. Moreover, from the parameters described in their documents, I would anticipate most of this funding going into bioscience, materials and clean energy. All these sectors have longer development times, larger capital requirements and are more pure-science based (and are therefore more speculative) than most TechCrunch businesses. In the web - software sector, I still see plenty of deals going down in that range, while very early stage is harsher than ever, so hope that fact is recognised.
I’ve just posted on the the TechLondon blog some more perspective on how policy and support should work in tandem with private capital:
http://techlondon.org/
However, nobody seems to have mentioned that this proposed NESTA investment is a long way from being the main event. A hell of a lot of support for business is out there, and has been for some time. I don’t have a £ figure, but there are something like 3,000 schemes out there for small business. As the result of a policy review started three years ago, these schemes are being centralised and simplified over the next three months, with the objective of making support more effective. Full details here:
http://www.berr.gov.uk/whatwedo/enterprise/simplifyingbusinesssupport/page44805.html
This will be delivered by (yes you guessed it) BusinessLink, and is a fundamental shakeup. Hopefully our industry will finally get some recognition and the specialist support it needs.
Sounds great, but I can’t help being cyncial about this, we’ll see I guess…
If this is done in conjunction with a complete shake up of the useless BusinessLink system, then great also.
As Jens states, this is the current status quo and it simply does not work.
This money should go into a real SBIR system to fund start ups (in the true sense) with sales.
Points to avoid at all costs;
- matching funds, you raise 100k we give you 100k (if you can do that you dont need their money)
- Research only grants, this money must be available to fund products that can be sold, no restrictions
- Funding dying companies to do a research project (as I like to call it the “fund the MDs new Jag grant”)
- Funding social schemes, they have their place but not here
Things to look for;
- Fund entrepreneurs, not universities IP departments
- Fund the entrepreneurs most likely to succeed, not those that make the best political news stories
has anyone got experience of approaching nesta - any tips?
I went to NESTA in the summer - motto ‘making innovation flourish…’ and was told that our thoughts on MyLocalWriter.com, a DIY self-service advertising system called Addiply etc etc was ‘beyond their area of experience and expertise…’
Fortunately, albeit for a different project and strictly of the ‘pilot’ variety - 4iP have ridden to the rescue as ‘backchat’ becomes the first idea to pop out of their back door having gone through the full submissions process; and all in about 4-6 weeks. So, credit where credit is due.
But given, for many of us big and small, time is of the essence right now, pinning your hope on a NESTA, an EEDA, an EEMA, a ScreenEast, a Norfolk Business Link, etc, etc… is fraught with peril.
I had the ‘NESTA experience’ back in 2000, attempting to gain funding for a paradigm shift project that I had worked on for seven years.
Although I believed I met 80% of the criteria in their mission statement, when I went through the submission process it became apparent by the leading questions, that my project was probably outside of their box. The irony of this dismayed me.
After the rejection, I had an exchange of emails with the director to see if it was worth trying for another source of funds, their ‘fellowship’. I was told that I needed to know someone in his list of referees, but he refused to reveal even one nearby name who I could approach, to begin validating the work and the connected science. I should have seen a clue in the title.
Eventually having got nowhere in getting the necessary help, I had to effectively reduce my costs, so I left the UK in 2002.
I remain with it and convinced of the power and potential of results that will come, so I struggle on in day jobs. I now also have the added burden of translating it into French to gain funding/recognition. Being English - and knowing how the French react - I am saddened that any future credit for launching the work will probably be claimed by France.
Of course, NESTA is not directly responsible for my challenges (I have a list of institutions, organisations and people that weren’t able to hear), however it was publicly stated at its inception that it was there to avoid the brain-drain. Having listened to the above-mentioned mp3 speech given by a Lord, it saddens me to speculate whether you still need to know someone in the establishment to live and innovate in the UK.