Low carbon innovation in line for funding

Manufacturers’ organisation EEF has welcomed the Government’s announcement – as part of its Building Britain’s Future strategy – that it intends to set up a UK Innovation Investment Fund with the aim of “driving forward innovation and enterprise that takes up the challenge to develop clean technology and energy options”.

According to Jeegar Kakkad, senior economist at the EEF, the UK’s problem is that it is very good at researching and developing technologies but very bad at taking them to the next stage and bringing them to market. As a result, many of the country’s best ideas end up on overseas production lines.

The EEF wants to see this trend reversed and says this will only be achieved with a significant commitment from Government on the future of low carbon energy and support to get UK ideas to the development and production stage.  

“The UK Innovation Investment Fund is targeted at the development stage, rather than pure research, and could help,” said Kakkad.

He suggested the £1 billion innovation ‘X prize’ which the EEF is proposing could sit “side by side” with the Government’s fund, offering a large amount of cash, but crucially orders, in a competition to “industrialise low carbon technology” – in other words, not just have the technology, but be able to scale it up and make money out of it.

“Anyone in the ‘X prize’ competition could be eligible for investment from the UK Innovation Investment Fund, which could then potentially fund the development-stage of the technologies,” suggested Kakkad. “Then the first past the post – or the first few past the post – would win the prize.”

The attraction of the prize approach is that it can shorten the development cycle by bringing forward a commitment to firm orders, said Kakkad, and while he agreed that an ‘X prize’ and the UK Innovation Investment Fund should “potentially be pushing in the same direction,” he said: “There is a danger [with initiative like UK Innovation Investment Fund] that you spread investment so thinly that you don’t get the momentum you need.

“Small pools of cash do make a difference – I don’t want to diminish that – but we do face pretty big long term challenges and we do need to push pretty hard.”  

To kick-start the UK Innovation Investment Fund the Government will invest £150 million alongside private sector investment. It believes this could leverage enough private investment to build a fund of up to £1 billion over the next 10 years.

The fund will be specifically targeted at what the Government describes as the ‘network’ industries of low carbon, biotechnology, life sciences, digital, advanced manufacturing and financial services.

Announcing the idea earlier this week, Gordon Brown said: “This fund will help build Britain’s future by investing in key sectors. It will provide crucial support for our most promising start-ups and existing small companies just when they need it most. Venture capital finance is the lifeblood of innovation and crucial to ensuring the commercialisation of the discoveries coming out of our research base. The fund will boost future UK competitiveness.”

The fund will not invest directly in companies but rather will operate as a ‘fund of funds’, investing in a small number of specialist technology funds that have the expertise and track record to invest directly in companies.

The first step towards making the fund a reality will be the appointment of a fund manager. This will be done through open competition, though a spokesperson for the Department for Business, Innovation and Skills was unable to say whether this would be managed by the Government directly, or through a third party such as the Technology Strategy Board.

The announcement of the fund comes at a time when experts are otherwise anticipating a significant dip in venture capital investment in early stage technology companies.

“The UK Innovation Investment Fund will be a shot in the arm for the British venture capital industry,” said Peter Mandelson, Secretary of State for Business. “It is also a challenge to UK venture capitalists to follow the Government’s lead in backing British entrepreneurs in building exciting new companies, investing in new technologies and creating jobs.”

The venture capital sector has responded very positively to the announcement of the fund.

Chief executive of the British Private Equity and Venture Capital Association, Simon Walker said: “I am convinced that this scheme can make a real difference provided it is implemented with the urgency that it deserves. Venture capital should be in the vanguard of economic recovery in Britain and it now has the chance to move from the relative fringe in economic thinking squarely to centre stage.”