Ways to kickstart excellence

Progress is slow on helping innovative companies succeed, says Lords committee

In 1991, the House of Lords select committee on science and technology called for radical changes in national attitudes towards the manufacturing industries, which members said was necessary to ensure UK industry competitiveness.

The need to fund long-term investment in innovation and a call to all the innovators to sharpen up on business practices, notably marketing, were key points of that report.

Six years later, members of the committee are dissatisfied with progress. In its report The Innovation-Exploitation Barrier, published last month, the message of the 12-strong committee under Baroness Hogg is broadly the same.

Warning that there is no room for complacency, the peers welcome some progress, such as the improvement in relationships between industry and academia and the interest of the latter in commercialising innovative ideas.

The Department of Trade and Industry is commended for kickstarting innovative businesses with its Smart and Spur awards, which are praised for an important secondary role – to provide the money lenders with a benchmark of excellence among innovative firms.

But there are still far too many DTI schemes that bemuse small firms. As as result, they are unaware of the importance of the science base to their survival and growth, according to the report.

The Small Business Innovative Research Programme in the US sets aside a small, fixed percentage of government contracts for small innovative firms – this approach was taken as a role model. The DTI is urged to examine ways in which its existing programmes might be used to underpin innovation processes.

Among the latest recommendations is a call to the Government to examine the role of Business Angels. Little is known about the activities of these industry godfathers who personally invest time and money in the companies. But ways to expand their role should be found, the Lords says, and that includes the development of a national network.

The Government should examine ways to reduce the disproportionately high cost of due diligence, needed by start-up companies, which is a disincentive to investors of relatively small amounts.

To quell fears that the City is becoming increasingly `risk averse’, the report calls for a reappraisal of the Venture Capital Trust schemes to see if the present direction is `consistent with the original intent’.

Founding shareholders should be treated in the same way as institutional shareholders for capital gains tax, the report says. But the Lords is against any sector-specific approach for tax relief.

Last but not least, universities and funding councils need to ensure that short-term development work does not squeeze out longer-term basic research.

Rather than revisit the broader issues covered in the 1991 report, the Lords decided to focus on one critical part of the process – the point at which new ideas become the basis for a viable business enterprise. As a starting point for this study, it chose what it describes as the interface between small firms and the academic community.

The Lords’ report is the latest in a series of studies, including those from the Bank of England and the CBI, which highlight the problems of turning innovation into a commercial product.

{{Steps towards innovation

* Rationalise DTI funding schemes* Set aside Government contracts for innovative firms* Develop a bigger role for Business Angels* Reduce cost of due diligence* Reappraise Venture Capital Trust schemes to ensure they are not `risk averse.’* Capital gains tax: develop equal treatment for founding shareholders and institutional investors* Protect long-term R&D}}