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Small business jumpstart

Author of industrial strategy review of the UK Small Business Research Initiative calls for increased focus on customer-funded innovation contracts to allow founders to grow substantial UK firms.

Small business jumpstart - glowing lightbulb with office workers in background

The author of a new independent review of the UK’s Small Business Research Initiative (SBRI) called today (28 November) for an increased focus in government policy on stimulating customer-funded innovation contracts so founders can build up their businesses without over-reliance on venture capital (VC).

David Connell

David Connell

David Connell, whose SBRI review was released this week alongside the UK government’s new Industrial Strategy White Paper, told Westminster Business Forum that minimising early venture capital injections has allowed some of the UK’s most successful tech businesses to blossom.

“This has enabled founding entrepreneurs to remain in control, and build substantial UK businesses rather than selling out early for the value in their technology,” said Connell, Senior Research Fellow at the Centre for Business Research at Cambridge Judge Business School, whose previous experience includes technology startups and a venture capital fund.

“Often this has been in fields whose commercial importance had yet to be recognised by either investors or government policy makers,” he said, citing vacuum cleaner maker Dyson and chip designer ARM as examples. Vodafone, he added, was spun out of Racal, “which began as a two-man engineering consultancy supplying specialised radios to the Ministry of Defence.”

“A key feature of many of the UK’s most successful science and technology companies is that they tended to avoid venture capital, or at least delay it,” Connell said. “And rather than being based on university research, their products have generally been developed against a specific customer need, with customers or partners themselves funding a good deal of the research and development (R&D) directly.”

In response to Connell’s SBRI review, the Industrial Strategy White Paper announced “as a first step” a new GovTech Catalyst to support tech firms in providing government with innovative solutions to improve the efficiency of public services.

While welcome, the “key test” of these plans will be whether government spending departments will back SBRI programmes with sufficient funding given other pressures on their budgets, Connell told the Westminster Business Forum event.

Looking forward, Connell argued that policies should shift away from increasing the supply of R&D towards increasing the demand for innovation in both the public and private sectors.

“A key assumption of current policies is that if R&D is made cheaper companies will do more of it, and this has been the rationale behind the £3 billion a year R&D tax credits programme”, he said.

“R&D tax credits mainly help companies with significant revenues or VC investments to provide the bulk of R&D funding,” he said. “But they can do much less to help the many promising startups and small businessess without this.”