THE GLOBAL CORPORATE VENTURING 2ND ANNUAL SYMPOSIUM 2012
"ADDED VALUE CORPORATE VENTURING"
Tuesday, 15 May 2012
James Mawson (Editor, Global Corporate Venturing): It is a great pleasure to see you all here this morning and I hope that those who came to our Tech Scout Challenge where entrepreneurs pitch to investors yesterday, and the Gala Dinner and awards event, had a thoroughly enjoyable time, that you met some good companies, some good peers and did some business. From my point of view, it was a real pleasure and an honour to see so many of you there enjoying yourselves and doing some good work.
I want to say a quick thank you to our sponsors Baker Botts, Corven Networks, Silicon Valley Bank and DLA Piper for their help and support with this year’s event. We have an Event Advisory Board of Heidi Mason from the Bell-Mason Group, Mark Radcliffe from DLA Piper, Andrew Gaule from Corven Networks and John Taysom formerly of Reuters Greenhouse Fund, now an angel investor and a Harvard Fellow for Innovation. They have helped to pull together what I believe is an exemplary programme, and I am delighted and privileged that so many people have given up their time to speak, but also that you, the more important people, have come to share your wisdom, to talk and I hope give us some feedback about what we should be doing over the next year.
Global Corporate Venturing is two years old this month, we had a little celebration and you might see on the chair a magazine which is our second anniversary. There is also a supplement which is our award supplement from last night’s dinner. As you can tell from my voice, I spoke a lot yesterday, perhaps too much, and I am deeply grateful to the speakers and keynotes who have given up their time, which I hope will allow me to speak less today which is probably a good balance to have.
Before I introduce our keynote, I want to mention something that I mentioned yesterday before our Tech Scout presentation. This is something that I read in Daniel Kahneman’s book. He was a Nobel prize-winning economist in behavioural finance and economics, and he writes a great phrase which I remember, as I am relatively good at sound bites and it was a good sound bite that I picked up. He says if you have to concentrate, what he calls the level 2 factor, and critically analyse something, put a pen in your mouth facing outwards. You may think why would you do that, but it gets your face into a frown position which biologically makes you analyse more critically. Therefore, if there is a particular presentation on which you want to concentrate, try doing it to see the effect.
Equally, the other point of view is that part of what we have tried to do with today’s symposium agenda is create a cross-regional, cross-sectoral look at the venture industry. You may think why would I be interested in what a company outside my sector or region might be doing, so for those type of presentations put your pen in your mouth horizontally which creates a smile. This a level 1 effect, which makes you analyse something less critically, making you more open and receptive to innovation, new ideas and experiences that you might otherwise not expect. That is part of what we are trying to do today. There should be presentations which I hope you can critically analyse and get something to take away for your day job. Equally, you are here to network, to brief and to be open to that spark of serendipity.
The Rt Hon David Willetts, MP for Havant, will kindly give a Power-spot presentation. I shall not say too much about his biography but he has been MP for Havant since 1992 and is current Minister for Universities and Science. He has worked at Her Majesty’s Treasury, No. 10’s Policy Unit, the Centre for Policy Studies and has served as Paymaster General in the last Conservative Government. Without further introduction from me, let me welcome to the stage the Rt Hon David Willetts.
David Willetts: It is a great pleasure to be here and sorry to be running late. I am also sorry if I caused a moment of anxiety to your conference host. First, I would like to welcome you, especially those from abroad, to Britain. I shall briefly describe what we are doing in the business department, with my particular responsibility for universities innovation and science, to provide the kind of environment in which I hope you will want to invest. We understand it is a crucial decision where and how to invest.
We see the British innovation system, which we described in a big policy paper that we published last December, less as a kind of sausage machine and more as an ecosystem, where we are proud of the combined strengths of our universities, our research base and our network of businesses. However, we know we always need to do better, so let me describe to you what we are trying to do in order to do better.
First, it is very important that we back venture capital. We have expanded a system that we inherited from the previous government of enterprise capital funds, which put further funds alongside existing venture capital programmes. One of the under-reported stories happening in Britain and elsewhere is the extent to which venture capital is increasingly associated with exchequer funding as well, and we have put a total of approximately half a billion pounds into a series of enterprise capital funds that go in to top up existing venture capital funds.
However, there is much more that we can do and sometimes I believe that in Britain we beat up on ourselves, saying why don’t we take enough risk; why are we not able to get venture capital investments when companies seek them? In fact, there is much more that we can do to work alongside venture capitalists and corporate venturing experts such as yourselves.
First, we can take public funding for research further. When I compare us with the US and look at how the National Science Foundation, or the National Institute of Health, finances a US research project, they finance them further downstream than we have conventionally done in Britain. So we stop the public funding early and then beat up on ourselves why don’t the venture capitalists come in, when in the US the public funding carries on for longer. That is why in probably our most important experiment in this area in a major speech by the Prime Minister last year, he announced a Bioscience Catalyst Fund where we align £90 million of investment from the Medical Research Council with £90 million of investment from the Technology Strategy Board to take ideas further towards the market. In this way, we do not have the situation that has bedevilled us for far too long that the pure research funding stops but it is nowhere near being an investible proposition. We are trying to join up the dots better and the Bioscience Catalyst Fund is an excellent example of that.
Second, we have brought back something that David Young introduced as a Minister in the last Conservative Government, which carried on but with frequent rebranding and with so much devolution it was only available in some parts of the country. This is a programme that we have brought back under its original name of the Smart Awards, which are to finance start-up businesses to help them meet the costs of proof of concept and proof of market. Too often, business start-ups are caught in a Catch 22 where they are told that an investor, be it a corporate venturing investor or a classic venture capitalist, will invest in them if they have proof of concept or proof of market, but they do not have the funding to get that in place. The Smart Awards are aimed at bridging that gap. We have put in an extra £30 million a year into them, and we have linked them up with a project we have to encourage and reward angel investors. Often, the very fact that a company received a Smart Award was a signal to angel investors that it was the kind of company in which they should think of investing, because we had kind of done the first assessment of a company and made it look like a more serious and credible proposition. Therefore, we are also doing Smart Awards.
Third, there is Government as purchaser. Again, when I look at the US, what strikes me is that, because the NSF or the National Institute of Health funds for longer, and because the US has such a big SBIR initiative, and in addition with organisations like DARPA, you can fund yourself all the way through to having a product out of a range of federal schemes. If you look behind the rhetoric of the free market, you discover the levels of federal and public funding going into business start-ups in the US is way ahead of what we have in Britain. Therefore, we need to try to copy from some of the interventionist programmes that are run so successfully in free market America.
One of these is SBIR and we are now running SBRI here in Britain, very much modelled on it, attempting both to offer contracts to innovative businesses with new solutions to classic problems within public services, and we are trying to reserve a proportion of government procurement contracts for small businesses.
I have talked about some of the things we are doing but, for the next stage of the process, if you are now a company with some accounts and revenues, we are increasing the value of the R&D tax credit to 225%, and we are making it payable above the line so that it is possible for companies to receive it as a cash boost if their revenues are low compared with their costs, so they would otherwise not be able to take the full value of the tax credit.
If you put all that together – coinvesting in venture capital, taking the public funding for research further by linking Research Councils up with our Technology Strategy Board, Smart Awards to help companies meet the initial cost of proof of concept/proof of market, SBRI and other initiatives in better procurement practices in the public sector and a favourable tax regime for R&D tax credits – this starts to create an environment where I hope you feel comfortable investing as global corporate venture experts. Nothing is perfect, we do not think this is the final word, but we very much hope that during the course of this two-day conference you will come up with other ideas. If they are transmitted to me in BIS, I undertake that we shall consider carefully any other suggestions you may make about how we can further improve the environment for business in the UK. Thank you very much.