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‘Avoid halt to innovation pipeline by investing in startups now’

Former science minister says public investment in early-stage companies is crucial in time of pandemic

Public investment in early-stage companies will become increasingly important as the economy reels from the impact of coronavirus, according to the chair of the UK Innovation and Science Seed Fund board.

Ian Taylor, formerly Conservative science minister and chair of the Parliamentary and Scientific Committee, made the comments after the publication of analysis of the economic and wider benefits of the government-backed seed capital fund.

According to the report, published on behalf of the fund by the venture capital firm Midven on 30 March, every £1 of UKI2S fund’s investment has resulted in £34 of follow-on investment from other sources.

In total, the fund has provided companies with almost £15 million of equity funding, with those companies going on to secure over £500m in investment—almost all from the private sector.

In addition, the report found that more than three-quarters—78 per cent—of the 57 companies in its portfolio would not have been established or would have ceased to operate without the fund’s support. Moreover, the companies were found to spend over 50 per cent of their funding on R&D and continue to do so “well after initial products are launched”.

Taylor told Research Professional News that the current Covid-19 crisis heightened the “important leadership role that government has in backing innovative companies emerging from the public sector science base”.

“Whilst attention is naturally focused on the immediate public health crisis, questions of national resilience and the economic challenges to be faced will come into focus, and the vitality of UK science and research will be key to answering both.”

In particular, he added, the role of UKI2S in investing in early-stage companies “will become even more important during a period when there might be a drought of private investment—or the private market focusing even more on existing and later-stage investments.

“To avoid the innovation pipeline coming to a halt in two to three years, we need to ensure that exciting but embryonic businesses can continue to secure the support and investment needed to evolve into entities able to attract the eye of the wider venture capital market.”

Mark White, UKI2S’s investment director, added that the government’s target of increasing investment in R&D to 2.4 per cent of GDP by 2027 would only be possible by leveraging private sector investment through public sector funding.

“This is often assumed to come from large corporates but fast-growing and R&D intensive startups are an increasingly important part of the picture. Now more than ever, it is important to support the UK’s strength in innovation to aid the UK’s long-term economic growth in challenging times and to provide solutions to global issues.”