Driving up private investment into research and development

Science Minister Chris Skidmore recently spoke about the role of private investment in achieving the Industrial Strategy ambition to invest 2.4% of GDP in R&D by 2027.

In this speech he suggested 7 key areas of focus, one of which he termed ‘Creating a scale-up culture’, outlining the continuing public investment in supporting investment in high growth innovative companies.

“Thirdly, we must ensure that early-stage ventures can access the funding they need to scale up. It is a little-known fact that the UK is the top destination for venture capital in Europe, attracting around a third of total European venture capital investment each year.

This capital funding is paying dividends, including in emerging tech. For example, in artificial intelligence, the UK has seen a six-fold increase in investment between 2014 and 2018, and a more than doubling of the number of patents in the last decade.

The government is fully committed to the scale-up agenda. The Industrial Strategy Challenge Fund is now in full flow, with well over £1 billion supporting active industry engagement, delivering 14 major and pioneer research programmes and over 700 projects.

The third wave of the ISCF will focus on challenges such as:

  • Industrial Decarbonisation to develop and deploy low carbon technologies
  • Transforming Foundation Industries sector
  • Driving the Electric Revolution to support innovation in electric motor technology

Building on this, I am delighted to announce a further £100 million funding for the Innovate UK Smart Grant programme. This funding will allow businesses to take game-changing, disruptive ideas through to commercialisation.

And we are piloting an exciting £75 million system of innovation loans for business through Innovate UK, to support innovations that are close to market in businesses looking to scale up by innovating.

The progress we are making is clear. For instance, here in London we have the fastest growing cluster in the world for tech scaleups. In fact, British Tech is growing over one and a half times faster than the rest of the economy, adding more than £130 billion to our economy every year.

So we should be proud that the British Business Bank is providing over £6.4 billion of finance to over 85,000 small and medium-sized companies, with another £200 million in loans and equity being made available this year for innovative businesses.

This is backed up by serious private investment, from the substantial funding being put into the future of fusion tech – including at Culham Centre for Fusion Energy – to the plethora of seed and scale-up capital funding from private investors such as the IP Group.

But compared with the US, we’re quite some way behind. Barely a month goes by without a so-called ‘unicorn’ – a firm with a billion-dollar valuation – going public in the US with eye-watering levels of investment flooding in.

Of course, we in the UK are pretty good at finding our own unicorns. Just look at Oxford Nanopore, Deliveroo and Monzo. In terms of number of unicorns, we rank behind only the US and China.

But I have heard concerns about our high dependence on a small number of private investors in London and the South East – those with the appetite to take risks on fledgling companies and with the patience to see these through.

It’s clear that we need to see significant growth in both the availability and the diversity of private financing into R&D.

That is why we launched British Patient Capital last year, with £2.5 billion public funding expected to unlock a further £7.5 billion of investment in innovative high-growth companies. And we remain committed to our ambitious Patient Capital Programme to unlock £20 billion of equity investment over the next decade.

In addition, we know that pension providers have considerable appetite to invest more in the UK economy. That’s why it is so important that the British Business Bank is working with a sizeable group of UK pension providers to explore how to collectively release the patient capital that finances innovative, early-stage companies.

And the work that London Business School are planning to train up a new generation of venture capitalists is potentially very important. We need to ensure we have enough people with the skills and expertise to make wise investments into our best ideas into flourishing businesses.”