UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 854-ii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Welsh Affairs Committee

Inward Investment in Wales

Tuesday 15 March 2011

Sir Terry Matthews OBE and Mr Simon Gibson OBE

Evidence heard in Public Questions 80 - 129

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Welsh Affairs Committee

on Tuesday 15 March 2011

Members present:

David T.C. Davies (Chair)

Stuart Andrew

Guto Bebb

Geraint Davies

Jonathan Edwards

Mrs Siân C James

Susan Elan Jones

Karen Lumley

Jessica Morden

________________

Examination of Witnesses

Witnesses: Sir Terry Matthews OBE, Chairman, and Mr Simon Gibson OBE, Chief Executive Officer, Wesley Clover, gave evidence.

Q80 Chair: Could I thank both of you very much indeed? Sir Terry, I think you have come over from Canada this week. Simon, I know you have come up from Monmouthshire.

Sir Terry Matthews: David, I am in the United Kingdom at least once a month, so it is not out of the ordinary.

Chair: It is very kind of you to come along to give evidence here today. We had a very outspoken witness on the economy last week. We really enjoy outspokenness and a bit of frank talking, so feel free to tell it as it is. Can I start by asking Jessica Morden, the local Member of Parliament, to ask the first question?

Q81 Jessica Morden: Hello and welcome. Congratulations on a very successful Ryder Cup. Can I kick off by asking what you think the economic impact will be for Newport and Wales of having the Ryder Cup in the county?

Sir Terry Matthews: There is a multi-faceted answer to that one. Most people do some sort of economic analysis. We know the number will come out between £80 million and £100 million. It depends how you bound that, but typically we think from the information we have that it will be between £80 million and £100 million. In my own case, I spent a fair amount of money putting the venue together because it had to be built from scratch. It was the first time ever for the Ryder Cup that it was a facility built from scratch for the purpose. It meant that we could pull in over 50,000 people a day between the crowds and the staff that were involved for that event. We were able to pull in over 50,000 people a day with two very large bus parks.

If you compare what we did with previous events, previous Ryder Cups could never have the logistics that we have. With the A449 on the east side and the M4 on the south side abounding the property, it meant the traffic could easily get in and out. We were able to build 140 bus parking spots, and that is continuous traffic. The previous one, which was in Kentucky, had 49 bus parking spots, so it was a tripling or more of the capacity. We were able to have hospitality on the 15th, 16th, 17th and 18th fairways, whereas in previous ones they would only have it on one or one and a half.

Doing something from scratch allowed us to have much bigger capacity. The crowds were over 50,000 people a day. Because of the weather, which was conveniently raining on a Friday, lots of people wrote to me and said, "Sorry it was spoiled," but they do not realise that golf and business go hand in hand. The flip side of the coin is that the people who were sponsors had much more face time with their most important clients. They wrote to me and said did I do it deliberately, because it was great for business. The upshot of this is that, instead of three days, which it has been since 1926, it ended up being four days. You might not realise just how important that is, but it is a 33% increase in terms of magazine, newspaper, radio and television coverage around the planet.

Q82 Jessica Morden: How does that anticipated £80 million to £100 million break down?

Mr Gibson: All of those figures will be released next week.

Sir Terry Matthews: We will not release those. They will be released by the First Minister on the European Tour. I am giving you an approximate number.

Q83 Jessica Morden: What do you hope the long-term legacy will be for Newport and Wales?

Mr Gibson: It is the brand. I can think of no other event in Welsh history that has created such global awareness of Wales. Terry can tell you, whether he is in China or India, that people now know where Wales is. They know the Celtic Manor, they know Newport, and there is a huge brand awareness. But one of the things we have to be very careful of is that it is not perceived as a finish line. After a big event like that, people often say, "Ah, we did it," and then ease off, whereas if we consider it as a start line to rebuild the brand, it allows us to capitalise on this massive global awareness that we have created for the nation. If we just let it slip away, a lot of the effect will be wasted.

Q84 Jessica Morden: Are there any indicators particularly on golf tourism now?

Sir Terry Matthews: Not just golf. My umbrella company, which I formed in 1972, is called Wesley Clover. That was after the Wesley church in Newbridge and the four-leafed clover that I found in the garden when I was six. I created this little umbrella company called Wesley Clover. It is funny. Some people call in and say, "Is Wes in this afternoon?" They don’t realise what the root is. It is mainly an electronics umbrella company. In my career, I have started up 90 electronics companies. On top of that, I have some real estate in terms of office suites, office blocks, hotels and so on. That is on the real estate side. Also, of course, I have some golf courses.

As Simon says, it is the brand. My business takes me all over the world, whether it is throughout the UK, continental Europe or Asia. You can almost name a city and I have been there within the last five years. Wherever I go, they all know Wales, the Celtic Manor and the Ryder Cup because of the billion-plus people who watched the Ryder Cup on television. Even now I keep getting emails from people saying, "That was a terrific event. I would like to go to the Celtic Manor and play the course." I get it all the time.

Q85 Jonathan Edwards: Bore da. I was very interested in your comments about the event being a platform. What do you think specifically policy makers need to be looking at now to be able to use the Ryder Cup as a platform and build the brand up from there?

Mr Gibson: There is an obvious connection between the game of golf and business. It is a shame we couldn’t publish all the attendees who came to the golf, because some of the CEOs and chairmen of some of the world’s largest companies were there.

Sir Terry Matthews: These were people that we met.

Mr Gibson: We had meetings with them. They have the capacity to bring hundreds of millions of pounds worth of business to Wales and the UK if we follow up and harness those opportunities.

Sir Terry Matthews: A good example is that Simon and I spent a couple of hours with the chief executive of AT&T. That was over breakfast. It was extended to about two-and-a-half or three hours, something like that. In the person’s normal environment, there would be a meeting slot of maybe half an hour or an hour and that’s it. But in the context of golf you can open up and have more time. We had some great meetings and reviews with some of the top CEOs on the planet.

Mr Gibson: The hotel alone, on the Friday afternoon when we were rained in, did more than £1 million worth of bookings for corporate customers. I know that there were other large multi-million pound deals concluded in those hospitality suites during the game. A lot of goodwill is created. It is important that we continue to follow up and make sure that we build on that, and not just sit back, relax and say, "We did the job."

Q86 Jonathan Edwards: Who would be responsible for that following up? Would that be Government?

Mr Gibson: I think it is a combination of Government and then the companies.

Sir Terry Matthews: Government and private. At the end of the day there is a good brand out there. The TV coverage gave very good visibility of how pretty the Usk Valley is and so on. There was very good visibility of general coverage of Wales. A very good image was cast and now we have to take advantage of that platform. Certainly that is what I would do and that is what I am doing. Whether the balance of the nation does that remains to be seen, but a very good image was created in those billion-plus viewers, and it is quite clear from when I meet business people around the world.

Hotels and resorts go hand in hand with business. It is not very complicated. If I was to suggest to you, "Why don’t you have a holiday in Iraq?", you would say, "There is no way I would go to Iraq." Why wouldn’t you go to Iraq? It has fabulous history. It goes all the way back to the Sumerians. There are beautiful areas to go and visit. You wouldn’t go there; you would say it is not safe. Would you make an investment there? No, because the people who work for you might get shot, clunk, clunk, clunk. It is not stable. Stability has huge value. When people visit, if they have a good visit, they stay at a hotel. They play golf. They might get a massage. God knows what their experience is, but if it is a good experience they will say, "That’s a good place; I could do business there." That is in fact what happens. But if you go to a place which looks down and out, unstable and it doesn’t have the rule of law, you won’t go back.

Q87 Chair: I am tempted to leap in, Sir Terry, and ask if you have been to Kurdistan recently in the last five years.

Sir Terry Matthews: No. I avoid it as a matter of fact, but I have been to Pakistan. Do you want to talk about Pakistan?

Chair: I think we would like to come back to global areas later, if we may. I am just going to bring in Stuart Andrew on the graduate programme first.

Q88 Stuart Andrew: Thank you, Sir Terry. I want to talk about the graduate entrepreneurship programme and find out what your aims were when you started that in Canada, and to what extent you feel you have met those aims.

Sir Terry Matthews: This goes back a long time. I founded this little company called Wesley Clover in 1972. That was to make an investment to start a company up. I had ideas about making a particular type of electronics product. A person called Mike Cowpland joined me. The unbelievable part of that is that I formed the company with $4,000. At the time it was about £2,000. It doesn’t take much of a magician to understand that you can’t pay salaries with £2,000. It doesn’t last long. I learned some very important lessons in that first year: first of all, the power of new graduates and people in universities. They are not married, typically; they have no children, typically; they have no mortgage, and they can work seven days a week if they are excited-and they do. I had mostly people that were out of their local universities working with me for nothing. We brought out a product because they punch way above their weight. They work seven days a week and so we came up with a product in about six or seven months. It was a product that I knew I could sell, which is another important part of the formula. I connected with potential clients first, not developed something from an idea and then tried to sell it. It is the flip way of what many investors do, inasmuch as it is connection with clients first, and then working very hard to come up with a product rapidly. Fortunately, the product sold-I never had any doubt that it would-and the company prospered.

The interesting thing is that, some 10 years later, every $1 stock option at the time in 1973 has translated to a value of $2.5 million. That made me a very wealthy person and I could afford to do almost anything. It was that 10 years, and the lessons learned were: the power of selected new graduates; the power of working with the clients up front-not taking ideas and developing a product, because if you do that it is highly speculative. This is not speculative.

The next thing was another learning that came along, which was about 10 years later. I formed another company with new graduates and developed a product, but this time with Mitel as the route to market. A new company has no credibility. God knows what it’s called: Grey Suit Corporation. Who the hell is Grey Suit? "We have been in business now for three months and I am chairman and chief executive." "How long have you been going for?" "Three months." The probability of getting business with a client is zero. But if you come along and say, "I am Mitel," they have been buying from Mitel for years, the contract is already in place with the purchasing department, clunk, clunk, clunk. The client will now listen to the new proposition and probably buy it from that new group, and that sparks up the business. Once you get the first client and then the second client, away it goes. It is connection with the client up front through some credible channel-in our case let’s say Mitel.

There are other strategic partners that we have today that are much, much bigger. We have $100 billion companies that are strategic partners for the companies that I start up. I start them up with new graduates. They work around the clock. Typically, after a year they end up owning 30% to 40% of the company. I have funded it. They took a low salary in return for the ownership. Out of the 90 companies that I have started up, all generally along this pattern, I have only lost six. Do you see the bags under my eyes?

Q89 Stuart Andrew: How have you aligned the scheme with universities in Wales?

Mr Gibson: Shall I answer that?

Sir Terry Matthews: You can answer it. I came from Swansea University. I have tons of friends in Cardiff.

Mr Gibson: Before I answer that, I wouldn’t mind responding to some comments that I think were said in this room over the last few weeks about the quality of graduates. I don’t necessarily share some people’s opinion of the poor quality of the outputs. In fact, as employers, we have built very successful multi-million pound companies based on Welsh graduates. Some of them have been absolutely outstanding. In fact, if I was to turn the guns on anyone, it would not be on the young people, to be quite honest with you. It would be on some of the academics that teach them. Perhaps that is where we need to look at increasing the quality, and not having a poke at the young people themselves, because our experience has been first class.

Sir Terry Matthews: The graduates are first class.

Mr Gibson: Answering your question about the alignment of the programme in Wales, it can be a bit of a challenge because we are proposing something that is relatively new. It is completely proven as a model in Canada. We have been running the graduate boot camp idea for about five years. So before we brought it over here it was very well tested. What we are trying to do is to make sure we follow the model that we have incorporated in western Canada, which is not only do the graduates come to our programme and a year later graduate into a company, so you get a company not a job, but the other thing we are looking for is to have it accredited so that the experience yields a master’s degree in applied engineering and entrepreneurship. That has been quite challenging.

Sir Terry Matthews: It is different.

Mr Gibson: Universities here are not as fleet of foot. I can give an analogy, because it is a good one, of timing. I approached the UK Government at exactly the same time as I approached the British Columbian Government. After 12 weeks, we had the system in place and agreed, financing established and the course accredited. We are now outputting our second company from the programme in British Columbia. We are only just now, after 21 months, getting the programme up and running in the UK. That is reflective of our attitude to risk, both in universities and in Government. It is a very frustrating challenge. What we have are great graduates rotting on the vine. It is not a great time to be a graduate in the UK. You would think that we would be all guns blazing to try and create opportunities for these young people.

I am glad to say that at least we are at the finish line now. We hope to launch in the next couple of days. We will start the programme in April. We are going to locate it in Newport, in the town centre, and we are aligned with most of the major universities in Wales. We will take graduates from other parts of the world as well. What we want to do is to have the programme operating in Wales, have the companies incorporated and headquartered in Wales, but we want the best brains we can get from wherever that happens to be.

Q90 Stuart Andrew: What interest has been shown by the Welsh Assembly Government and by the Government here?

Mr Gibson: The Welsh Assembly Government have agreed to match-fund the support of both-

Sir Terry Matthews: The answer is generally very supportive. They took a look at what I do in Canada. It is not that I don’t do things in the UK-don’t get me wrong-but, historically, the bulk of the operations for both companies has been in the US and Canada. They look at the success rate and in general are very supportive. I can take you to a much higher level which I think you should be concerned about. If the new graduates coming out of universities are not the next generation of business people, we don’t have a future. I would make that observation.

If you take a look at the salaries in India and China-and I go there very, very frequently-I can hire extremely good PhD grads on about $12,000 or $14,000 a year. It would be 10 times that in North America or here. I count out other Asian countries and don’t worry about them, because between India and China there is half the world’s population-2.5 billion people. So, if anyone says that eventually the salaries will come up, you are dreaming because there are 2.5 billion people and the average salary is $700 a year. They work incredibly hard. You just have to accept and adapt a little bit. As Darwin will tell you, it is not the biggest that survive or the strongest; it is those best able to adapt. In our case, to maintain or grow our economy you have to have what I call "first mover advantage". You have to develop things before the low-cost nations are on it. In the last 10 years, you have seen Google come up from nothing and be the size of Microsoft. How can such a thing happen against the competition from China and India? It is first mover advantage.

Q91 Mrs James: We have heard a lot from previous people giving evidence about end-of-life products, and that we have become very dependent in Wales on products that really were not, as you talked about, at the beginning of the process. Do you think that is a good evaluation?

Sir Terry Matthews: I am not that sure how to answer that. Clearly things have cycles. Wales had a cycle of being the world’s source of metals. There was copper in the Swansea area and iron and the ferrous metals on the eastern end. That was all created because we had anthracite, coal and lots of water, plus we had the ore. The country went through that era and then it died out, I suppose, around the second world war. In the 1950s, it started to go down and then we became a source of branch plants-low labour cost-which I hated, even when I was young, because the headquarters are somewhere else, all the decisions are made somewhere else. I hated that era. What is the next phase? I believe we have excellent graduates. We have to find ways of keeping them. They have to be in business. They have to want to be rich. There is nothing wrong with having a little touch of greed. There is nothing wrong with that.

Mrs James: Ambition.

Sir Terry Matthews: People have to have ambitions. They have to have things which are exciting and to get on selling around the product. We don’t teach people how to sell in universities. The thing about a business is that it starts with selling. If you don’t sell, you definitely will go out of business. As far as the commercial side and the business side is concerned, we have to bring on new graduates that end up being good business people and sell around the planet and know how to do business. That is basically what Simon and I do.

Mr Gibson: I gave a lecture in Swansea two weeks ago in the main auditorium by video, which was packed and overflowed into the second largest auditorium on the campus. I spoke to the guys for an hour and the response at the end just warmed my heart. These are really bright, motivated young people who want to do something. Trust me, there is no shortage of applications to come on our programme. The foundation itself is set up as a charity, or we are hoping it will be registered as a charity because it is engaged in education. We then commercialise the outputs of whatever comes out of the foundation, which is exactly what we have done in Canada.

One thing is worth pointing out. We have had some significant private philanthropic support of the foundation in Wales. Some of Wales’s biggest names in industry are not just supporting it verbally but dipping their hands into their wallets. I will save it until the announcement, but you will be refreshed to know how much money is being put in. It is not just something that we think is a nice idea that we bring in from elsewhere. There is a groundswell of support knowing that, as Terry said, the future of Wales depends on our ability to mobilise our young people to innovate, create and exercise enterprise. As we do that, we will rebuild our economy. But if we sit back and think somehow that we are going to attract inward investment to come into Wales, I wouldn’t bet the shop on that because that is going to be a long, hard process because we are up against low-cost economies that can kill us on costs.

Mrs James: That is very refreshing.

Sir Terry Matthews: You will never win on the labour cost rate. It is just ridiculous to think about that. Don’t even think about it, if it is not innovation, taking advantage of what I call "first mover advantage" on new things-and you do that by connection with clients up front, not after you have developed something. Take the speculative part out. One of the things we are introducing in the programme in Wales right now is not new to me. I have done this many times and it has been honed down in the last five years a little tighter. There are some things that I could talk about, but it would take a long time to discuss in the Committee. There are many things, but take, for example, quarterly reports. You might say, "What does that mean-quarterly reports?" We bring in new graduates and I expect a quarterly report after three months. If they don’t have something done within three months, why not? So every three months there are quarterly reports and then an annual report of what happens. You see, eventually along will come investors and they will ask for due diligence. "What is the background? Who has been doing what? What is the client activity? Who developed what? Are there any sales? How much did you spend?" The first page is always very simple English, not acronyms-not even acronyms like "IP networking". You might know what IP networking is, but not everybody knows what that is. In engineering, there is a tendency to be very heavy on acronyms. I forbid that, because then people can understand in plain English what is going on, what has been spent and what client activity there has been. That acts as due diligence for people who are interested.

I would like you to think about these reports, not just as something that captures the financial side, but more like a TV serial. You see the first episode, then you see one a week later, and then you see one three weeks later. Unfortunately, you miss the third and fourth ones. Damn it, what happened? Jane was about to stab somebody and they stop it for the next one. Now you get mad because you missed one. You see, these quarterly reports are a bit like that. You send it to Auntie Jane and Uncle George. They read it and Johnny is in this start-up company. When little John wants some investment, Auntie Jane says, "Yes, I know what’s going on there," because it is in simple English. It is not acronyms. This is just one tiny example of honing it down to maximise success.

Another example is creating strategic relationships with very large companies that are anxious for new services and new solutions for their clients. In that regard, I think we have done an incredible job. Are we allowed to say who we are working with?

Mr Gibson: Yes. One of the other things I would point out is that, when the graduates go through the programme, obviously they reach a point of graduation. There are three things that we look for to be put in place for them to graduate. One is that we want them to have a product, an application or a service. Second, we want them to have a customer. Third, we want them to have access to a revenue stream. It sounds obvious, but I can guarantee that the vast majority of new start-ups fail because they don’t have the right product, they don’t have a customer and they don’t have clear visibility of a revenue stream.

Sir Terry Matthews: And then nobody will invest.

Mrs James: It’s a risk.

Q92 Susan Elan Jones: One of the things that fascinates me from what you said is about the ownership that the graduates have in these companies. Has that always been a pivotal part of the programme?

Sir Terry Matthews: Ownership is what drives it. In our programme, I will tell you that the students typically earn what you would call "sweat equity". In North America, you would expect people to earn, if they are really good new grads-and those are the people that we hire-$70,000 a year. They have good degrees and can get a job anywhere. Typically, they would take a job with Microsoft or one of the other large companies, but they don’t; they work with me. I pay them $25,000 a year. It is what they don’t earn that becomes the equivalent of "sweat equity". They get to own 30% to 40% of the company after a year. It does two things. One, it means the burn rate before you have sales is relatively low because the salaries are low. They work seven days a week anyway. They have nowhere to spend money. The fact of the matter is that they know it is about ownership. Some of the graduates’ parents say, "Don’t take any money, just maximise the ownership."

Mr Gibson: They sit there and within, say, a year they see their company worth $1 million. Then they do a financing round a year later and they see the company worth $10 million. These are not exaggerated. These are real case examples. If you have a company worth $10 million and you, as a group of founders, have 30% of that, thank you very much, all of a sudden I am very enthusiastic about the-

Sir Terry Matthews: And that drives them even harder.

Q93 Chair: Can you give us a brief study of a company with a product?

Sir Terry Matthews: There are many. There are about 12 on the go right now. One of them is three and a half years old. It is called Beinn Bhreagh. It is always an important thing to get a root name which has some meaning. In this particular case, Beinn Bhreagh is the name of the first home that Alexander Graham Bell built, so there is a little root to the name. The company develops notification systems. Whatever the type of business-let’s suppose it is an oil company like BP-there are difficult issues every day for large companies. Retailers are the same way, but let us take an oil company. We were approached only after being in business for a year by Petrobras, the third biggest company in the world. They have emergencies every day: a pipe broken; a valve gone; an oil spill; a lorry turned over. Every day there is an issue that is significant. It might be at 3 o’clock in the morning. What this company does is build a management system that gets down to different media to get to people on an emergency or an urgent notification basis.

David, let us suppose I wanted to get to you at 3 o’clock in the morning. I would want your home number, your mobile number and probably a London number. I would want an e-mail address. I would want to know if there are any paging systems to get at you: SMS or instant messaging. These are all ways that I can get to you because there is an emergency at 3 o’clock in the morning. Not only do I use all these vehicles to get to you, but then you notify me and say, "I have the message and I am on it." It is the acknowledgement that you have actually got it and now you are on it.

This particular programme began with universities, when there was some shooting in Northern Virginia. The university made an announcement that said, "There is a gunman in the main lobby. Everybody go to the west entrance." Of course, the gunman also goes to the west entrance, so that absolutely doesn’t work. We developed special IP addressed paging systems and a software system to get at every type of media that you can get at.

The upshot with this company is that the sales have grown something like the following. It took nine months to come up with the first product. The sales won’t be accurate, but it will be roughly $20,000, $60,000, $120,000, $200,000, $250,000, $300,000. They are now at about $1 million a quarter. They have just taken in investment money of $4.5 million at a valuation pre-money of 10. It is three and a half years old.

I could give you other examples if you wanted, but that is a simple example where now they are beginning to sell products around the world. Verizon, which is one of the biggest service providers in the world, and AT&T, which is one of the biggest service providers in the world, both now start selling the product. They have just won business with a company called Jack in the Box. You might laugh at the name, but Jack in the Box has 3,500 restaurants. They had a case where some people died from meat which had gone off. A bad batch of beef had gone into all of the stores and it had salmonella. People actually died from it. In this particular case, like any supply channel if there is a problem, if there is a bad batch of something, once it is found there is a compliance issue. They only have two hours to clean it off the shelves. They invoked the system to get to all the managers, all the restaurant chefs, all the sous chefs, clunk, clunk, clunk, to say, "Here is a bad batch. Clean it off." They get back and say, "Got the message. We’ve cleaned it off." So they were in compliance. That is on the food side for such a product.

There are so many use cases on supply lines for manufacturers and so on who want "just in time". This is a company that is growing very fast.

Chair: I would be interested to know when it gets listed.

Sir Terry Matthews: Did that help?

Chair: It does help. Thank you very much.

Q94 Guto Bebb: In your view, does Wales have a good or poor track record at encouraging entrepreneurial activity?

Mr Gibson: I think the results speak for themselves.

Q95 Guto Bebb: In what way? Could you elaborate?

Mr Gibson: It hasn’t been great, has it? I have been a Welsh-based entrepreneur. I formed Ubiquity in Newport. Fortunately, we had a good result. It was sold ultimately for a total value package of about £200 million to Avaya, part of AT&T. That was a great success and we could name others. It is not just a Welsh thing, so let’s not beat ourselves up. It is a UK issue. Let me give you an example of a reason why. It is all right for us to say, "We think this; we think that". Let us talk about why not. There is a crisis in the access to capital. Venture capitalists are shutting down. They are not functioning any more. The reason for that is that the money supply to them has dried up. Traditionally, in this country and in North America, banks and pension funds took a certain small percentage of their assets and applied it to fund venture capital. I invite you to talk to the banks and see how many of them now apply their capital to this asset class of venture capital.

Sir Terry Matthews: It is dead.

Mr Gibson: It is dead.

Sir Terry Matthews: It is like looking for water in a desert; there isn’t any.

Mr Gibson: So there we are saying we are going to rebuild the nation on an enterprise economy and we are going to encourage entrepreneurship, but there is no fuel in the tank. At a time when the Government owns some banks, whether it is carrot or stick, I would encourage the Government to put some money back into venture capital-to put some fuel in the tank to fund our plans for an enterprise economy. Without the fuel we are just going to be a talk shop. We are going to do lots of good entrepreneurship work, but not when the company needs £10,000. You can always find someone like a Finance Wales to invest those sorts of amounts of money, but you try raising money when you need £2 million, £3 million, £4 million or £5 million. It is absolutely dire, no matter how good your idea is. What tends to happen in Britain is that we build companies up, they reach a certain critical mass and they are acquired by foreign companies. The reason for that is they don’t have the ability to raise the capital to keep them in the game, if that helps.

Sir Terry Matthews: Are any members of the Committee familiar with the venture capital side? Is there familiarity with this side of investments in small companies? The banks are completely out of this asset class. In Canada, the US and the UK, they are right out of it. The pension funds have also exited it because the returns have not been good. Because the returns have not been good, they say, "Okay, we will put money elsewhere."

Mr Gibson: You could build new venture funds just on the money that these damned bankers get in bonuses, to be quite honest with you.

Q96 Guto Bebb: Could I follow up on that point, because the question was in terms of the track record that Wales has? You said that the track record of Wales was not particularly bad in comparison with the rest of the UK, but then you came to the issue of the shortage of capital. Surely the problem existed before the current credit crunch. Would you comment on that?

Mr Gibson: It has always been difficult.

Guto Bebb: It has always been difficult, okay.

Mr Gibson: But, that said, back in 2000-2001, I think at the time I raised the largest venture round ever. We were a Welsh company based in Newport. We raised £27.5 million. It can be done, but I wouldn’t fancy my chances doing that right now. I would be lucky to get £27.50.

Q97 Jonathan Edwards: Do you have any confidence that the so-called "Project Merlin" is going to change things in terms of finance for entrepreneurs? There is supposed to be a deal between the bankers to lend more money and they are allowed to keep their bonuses if they achieve those targets.

Mr Gibson: No.

Q98 Geraint Davies: You said there was a systemic failure in terms of venture capitalism and then mentioned that the Government has an opportunity to get in there. Historically, hasn’t there been a problem in terms of picking winners and all this stuff?

Mr Gibson: Yes; I am not suggesting that the Government gets in there.

Q99 Geraint Davies: What would you propose?

Sir Terry Matthews: Geraint is saying there has always been a problem picking winners and so on. Isn’t that right, Geraint?

Geraint Davies: Yes; that is right. That is one of the issues.

Sir Terry Matthews: But I don’t think that is what Simon is saying.

Mr Gibson: I am not saying the Government should be the venture capitalist. I think the Government could put in incentives in terms of taxation to encourage people to get involved. It is not just banks and pension funds; it is high net worth individuals. A couple of years ago I gave a talk at Cardiff Business Club. If you are going to get a forum in Wales full of high net worth individuals, it is probably the Cardiff Business Club. From the podium I asked a question. I said to them, "How many of you have actually invested in a local Welsh company?" I’ll tell you what: it wasn’t a spectacular response. A couple of hands went up. If we had that same audience in Canada and we said to people who are high net worth individuals, "How many of you have put money into the local economy and invested in local companies?", loads of hands would go up. The difference is the taxation system.

Q100 Chair: Is it the corporation tax or the rules on investment-capital gains?

Mr Gibson: Tax credits.

Sir Terry Matthews: Tax credits for investment in small companies. It is tax credits. It is essentially neutral to the budget. It generates more tax than the credits. If you are interested in such information, I would be happy to send it to you.

Chair: We would be.

Sir Terry Matthews: It would be wrong of me to stretch this any further than saying that it has worked very well in British Columbia. It has worked very well in New Brunswick. Ontario is currently looking at it for the budget this year, and the Federal Government is looking at it to see if it should be something that they do countrywide because it has been very effective in some provinces. I would suggest that information might be valuable in the context of this Committee and that you could encourage the Government to provide tax credits. If it can be shown in the model that it is neutral for the Treasury, then please tell me what the disadvantage is. If the advantages come because people invest as a venture capital type of thing, as an individual, and get a tax credit and the entire thing to the Treasury means it is neutral, then you encourage more people to be employed and you encourage more start-up companies. It is not very hard to understand that, if you have a company of two people, it is fairly easy to grow it to four. It is tough to take 20,000 and grow it to 40,000.

Q101 Geraint Davies: Can I come back to my particular point? I have started small businesses as well, as it happens, but it seems to me that, in terms of venture capitalists, the problem with venture capitalists for many small businesses is that they require massive returns on their investment. I think what you are now saying is that, by the route of tax credits, local people might invest in local businesses not demanding the earth from that small company.

Sir Terry Matthews: Right.

Q102 Geraint Davies: The third vehicle you have mentioned is the "sweat equity", which is obviously a very successful mechanism.

Sir Terry Matthews: Geraint, I don’t wish to confuse this. On the one hand, the limited partners-pension funds and banks-don’t provide money to venture capitalists. That is number one, and that is bad. That is very bad because venture capitalists look at what is called "deal flow". They look at the companies. The companies say, "Here is my business plan. Here is what I have done, clunk, clunk, clunk. I would like some financing to make it grow." That is the venture capital side. The other side is individuals that are wealthy that might be persuaded to invest in small companies, in particular if there is a tax credit, because it is a risk. At the end of the day, if somebody provides money and the bulk of it is spent on labour, the labour is taxed in any event. If the funding is used to pay for labour, in this particular case perhaps a lot of people who are graduated, clunk, clunk, clunk they will be taxed anyway. If it goes back on a tax form, what is the problem? Encourage it, because some of these companies will actually grow and employ a lot of people. It is starting the engine up.

Mr Gibson: That is the great thing about the knowledge economy too. The vast majority of the money that you need for your company is spent in human capital, in personnel. They pay taxes and national insurance, so the Treasury gets half of it back anyway.

Q103 Chair: It is something we would be very interested in having a very short-

Sir Terry Matthews: With your permission, I will send you the clearly defined British Columbia model. Other places in Canada are now saying, "This works." That information might fairly quickly help guide some changes in the way investment funding is used for companies.

Chair: We would be very grateful for that, Sir Terry.

Sir Terry Matthews: All right; I am happy to do that.

Chair: We have already asked about taxation incentives, haven’t we?

Q104 Mrs James: I just wanted to tease out a little bit more about your personal experience in Wales. Obviously you have been here a long time now and you have had a huge commitment to Wales. In your experiences, has it been easy to invest in Wales? What factors did you consider the most important and is that a lesson for future investors?

Sir Terry Matthews: Siân, do you play golf?

Mrs James: No.

Sir Terry Matthews: You could. There are some great golf courses at the Celtic Manor. That is a form of investment. We do encourage young people to learn to play golf and other things. That is an important part, believe it or not, of business. I talked to that earlier. My experience in Wales started in the early 1970s with Mitel, where I started up in parallel with Canada. I started up with some people here in Mitel, first of all, to build things called tone receivers-that was the first product-and then PBXs. My experience in Wales, whether it is co-operation from the Government or whether it is the new graduates we hire-is as good or better than anywhere else. Did that answer the question?

Mrs James: Yes.

Sir Terry Matthews: I have hired many, many people in Wales and they are as good as or better than anywhere else on the planet. How we can take within Wales more start-up companies that grow is to me the biggest opportunity we have in any field. It is keeping those graduates local. It is keeping those graduates motivated. That is the most important thing we can do.

Mr Gibson: A few years ago I sat on the board of the WDA. I was asked to entertain an American in Cardiff Bay. I did so with a gentleman called Drew Nelson, who runs IQE in Cardiff. I remember he was being besieged by various inward investment packages, but he was different because he didn’t have a company. He was an inward entrepreneur. I remember saying to him at the time, "All the regions will throw money at you and all of them will try and incentivise you, and in some ways almost bribe you to come to the region. The reason that you should come to Wales is the quality of the people, their work ethic, their output and their loyalty." I am glad to say I think what we said rubbed off a little bit because it was Henry Engelhardt from Admiral. If Henry was sitting in here and we were to ask Henry what he thinks of his Welsh work force, you would be gladdened and heartened by what good things he would have to say about how good the staff are. That is the most important thing-the people.

Sir Terry Matthews: You would be pleased to hear it. Siân, you asked for my experience. The experience has been very good, whether it is the work ethic, the quality or the loyalty. It has been very good.

Q105 Mrs James: We have heard evidence from previous witnesses who have said that, in the 1970s and 1980s, a lot of the inward investment was because of the grant culture, and that they were enticed in in some ways. There is a lot of competition out there for the potential investors in Wales. How can we make sure that we are at the front and that we are the place they come to? You have talked a little bit about it, but maybe you can say a little bit more.

Sir Terry Matthews: Siân, grants are always good. You can’t possibly say it is bad. When you provide cash to a company to entice them, clearly that can’t be bad because you are helping to fund the operation. It would be very silly of me to suggest to you that that doesn’t work. It clearly works. At the end of the day there is this other side, which is the quality of the people, the quality of the new grads and the hard work ethic, which I have found has worked very well for me.

Mr Gibson: And the innovation output of universities is very important.

Q106 Mrs James: The Techniums have been particularly successful, for example, at Swansea University.

Mr Gibson: Yes.

Q107 Chair: Have Techniums been a success?

Mr Gibson: I went before a Select Committee in the Assembly and I was asked this question. You will remember I wrote a report several years ago about the commercialisation of intellectual property in higher education. It got buried for about nine months because I think I said something negative about Technium. When I was asked what I thought of Technium, I will repeat my response that I gave there. Technium started out as a very, very good idea based on the exploitation of intellectual property and ended up a very poor idea based on property.

Q108 Karen Lumley: Can I follow on from Siân’s question? Obviously, in the 1970s and 1980s we were really good at attracting inward investment, when it was 25%, and in 2009 it fell to 6%. Can you enlighten me as to why? Is it grants, or are there other reasons for that?

Mr Gibson: It is pressures of the world economy, which is shifting, and the cost base is shifting. Our cost base is very high compared to other parts of the world. A friend of mine used to work for the BBC. He resigned in the end because I think he just got fed up standing outside factory gates-he was supposed to be the business correspondent-announcing another closure. Of course, it flips over to the politician, and the politician says, "I know the factory has closed; we are moving Wales up the value chain." That is a standard kind of response, which worked years ago if we were competing with a country like Mexico, but now we are competing with somewhere like China-and you don’t think they are moving up the value chain at an alarming pace? They are not a low-intellect economy. They are punching out engineers and scientists at a rate that is breathtaking.

At this point I would like to prompt a question from Terry. I want Terry to talk to you about a meeting he had several years ago with an economist who was working for the Brazilian Government because I think it is absolutely key. Do you want to talk about that, Terry?

Sir Terry Matthews: Are you talking about the Indian case?

Mr Gibson: Yes.

Sir Terry Matthews: This goes back to 1978 when I was travelling from Montreal to London. I had a meeting that morning when I got into London, so I wanted to sleep. I got in the 747 and I moved back. This character was next to me. He pulled out the stuff from his briefcase and it was flopping all over me. I said, "Do you want me to put my table up? Then I can get a little sleep and you can have a little more room", because the tables on both sides could have given him a little more room. He said, "I am on my way to Delhi," and so the story began. I didn’t sleep at all that night.

This guy was from Montpelier, which is the capital of the state of Vermont. I will capsule very quickly the things I learned in that discussion. Remember this is the 1970s. There is a curve-actually it is more like a straight line. On the one side is growth of GDP and on the other side is the percentage of engineers in the society. It is not complicated. It is growth of GDP against percentage of engineers, not number of engineers. It is a straight line. Sweden, Germany, the UK, the US and France is very high. India is very low in the 1970s. There are not many engineers as a percentage of the society and the GDP growth is very low, but it is a relatively straight line. It is growth of GDP against percentage of engineers.

Now, he went to India with these charts. Another chart showed that, because the growth of GDP is lower than the growth of population, standards of living keep falling because the GDP growth doesn’t keep up with the growth of the population. Again, it is not very complicated to understand. He went to India and they came in with very large programmes to increase the number of engineers in the society. The upshot is that it has one of the fastest growing GDPs in the world now and the number of engineers far exceeds the number required. They do tons and tons of outsource engineering for people in the UK, Canada and the US. Outsourcing of engineering is a huge thing now. Companies that are $50 billion to $100 billion a year doing engineering, mainly software, are outsourcing because they just created so many engineers. The GDP has shot up and so the standards of living are improving.

I encourage you to think about that. How many engineers are we cranking out in our society? The first question is: how many engineers? The second thing is: how many are staying? If they take off, they didn’t help create any commercialisation. Commercialisation is perhaps a subject in its own right. If you look at the amount of funding that comes from the Government into university research, the question should be asked: what parts of that research end up creating companies or being commercialised? The answer is almost none. Then the question is: are we right to keep that high cost of spending in university research instead of spending directly into companies? We should question that, because if you spend in companies, it helps them to create research and development wherever their operation is and they become more competitive worldwide.

I would argue for more direct funding into industry than funding into university research, unless the university research has a little provision that says, "Okay, I want a commercialisation plan." If there is no plan for commercialising it, no plan for an attachment to something which represents sales, boom, you don’t get the funding.

Q109 Susan Elan Jones: I was very interested in what you said earlier that cash to entice is never really a bad thing. Do you think that Government has the balance wrong? Did too much of this go into what we might think of as prestige projects in terms of inward investment? Do you think it would have been better to have had more of that into regional entrepreneurialship?

Mr Gibson: Two things happened. I can’t talk to the 1970s, but I can talk to the 1980s and 1990s and the early part of the new millennium. One thing you noticed was that you were definitely advantaged if you had a foreign badge on in terms of talking about support. You were also disadvantaged if you were in a knowledge economy business. The grants were always orientated towards large capital expenditure like machinery. Of course, if you are a software company or a scientific institution, you don’t need tons of capital equipment; it is people. Fortunately, around the 2000 mark, they started to adjust the grants system to move it towards intellectual property and not physical, tangible machinery and assets. That was a big change in the scheme.

During the 1990s particularly, I sensed amongst the business community that they were bitter because if you had a Welsh badge on, you were sent to the back of the queue, and if you had a Japanese or American flag on, you went to the front of the queue. The multiples were hundreds more than you could get if you were an indigenous company. Fortunately, that has finished. You do sense that you are on a more level playing field when it comes to grant applications now.

Q110 Geraint Davies: I want to refer to something that people have called the "production mandate", but which in essence, as I understand it at least, is that the grants and the amount of grants should be linked to the quality of the investment and the quality of jobs that are being created. Instead of these simple jobs where they are putting something together, the grants would be higher according to the level of research, the level of responsibility and the calibre of jobs. I know you focus quite understandably on entrepreneurial innovation and indigenous growth as opposed to inward investment, but do you think there is a role for inward investment, and do you think it should be geared in that way, qualitatively?

Sir Terry Matthews: Yes.

Mr Gibson: The score sheet was always jobs created, jobs retained, dah-de-dah-de-dah. It was a fairly blunt instrument. There was never any consideration for-

Sir Terry Matthews: Quality.

Mr Gibson: In terms of research as well, in universities you are judged on your publication history. The research assessment exercise-

Sir Terry Matthews: Wrong motivation, in my view.

Mr Gibson: As soon as you publish you can’t patent; you can’t protect it. It goes into the public domain and it is over. Yet why aren’t we judging our academic community in terms of patents registered and intellectual property created? That should be a central part of the research assessment exercise, not just "Did I get my paper in a learned journal?"

Q111 Geraint Davies: In terms of intellectual capabilities, obviously innovation, entrepreneurial growth and inward investments are going to be geared to the level of skills delivered by our schools and universities. There has been some criticism in our hearings of the delivery and focus of both schools and universities. Is there anything that isn’t being done that should be done? What is your comment on that skills offer?

Mr Gibson: Two weeks ago I sat in a meeting and I heard Queen’s in Belfast present. Sometimes the best ideas are the simplest. What Queen’s have decided to do is to teach entrepreneurship as a module, which is accredited-which is a really important issue. It is accredited. So it is not a waste of your time doing it and it counts towards your degree. You study entrepreneurship in every subject that is taught at Queen’s. Theology: learn entrepreneurship. You might say why would a theologian want to study entrepreneurship? If he is going into the ministry, he had better be entrepreneurial to keep his flock together and financed. History: they were sending undergrads out to look at historic sites and how they could be better utilised and commercialised in terms of sustainability. I asked specifically about medicine, and the chap said that medicine was a big issue because the trainee clinicians were saying, "We have got enough on our plate; we don’t need to do business and entrepreneurship." Then the Government made its announcement about the reforms of the health service. Now, every single one of these guys is queuing up to do the course.

I would hazard a substantial bet that the Northern Ireland economy is going to benefit in 10 or 20 years very significantly because it has taught entrepreneurship in higher education to every single grad that comes out of that institution. It is showing already with spin-out companies. It is why Queen’s are winning so many awards around Europe. They have taken a very fundamentally simple decision-every graduate needs to be taught entrepreneurship-and they are changing the road map.

Q112 Geraint Davies: Sir Terry mentioned the distinction between research and development in companies which were commercialising ideas, and research in universities, which often weren’t. Do you think there is a case to be made for investing money to bring together partnership activity between companies and universities to generate ideas as part of the delivery mechanism? I know in Swansea university, for example, they are trying to build up on Fabian Way a cluster of different companies. Rolls-Royce, Tata, Boots and all these people are getting involved. The idea is really to have the R&D, the intellectual side, networked to the real world. Rather than have a separate idea-choose this one or that one-is there a case to bring it together?

Sir Terry Matthews: We spent some time in Finland, and that is exactly what they do in Finland. They connect. There is pretty much no research that is done that is independent of some commercial operation. Correct?

Mr Gibson: Yes.

Sir Terry Matthews: It is totally connected.

Q113 Chair: Sir Terry, you talked about the need to encourage more graduates to set up their own companies through vehicles like Wesley Clover and others as well. What other strengths does Wales have? What could we be doing to develop the economy?

Sir Terry Matthews: The graduates are good. We certainly find that, and that is the raw material. Without that, you go nowhere. But then there is connection to the clients, that connection to the customers-a little bit like we were just talking about. The difference in the Wesley Clover model is that people get ownership out of that. If they work very hard, they get that ownership very quickly. The time to ownership is very short, partly because of this model that we developed.

By the way, we are quite happy to divulge more of the model that we use. I do not have some exclusive on the model. It works and if somebody else is using similar things I think that is just fine. Perhaps one of the things that is available in Wales is the fact that I travel there frequently, I would think one of the important things would be to be doing more in the way of putting on presentations to the main universities to say, "This is how you create entrepreneurs." That would encourage people. If it has been done before, why try and reinvent the wheel? Putting presentations on, whether it is in Bangor, Swansea, Cardiff, Newport or whatever, would encourage new graduates to have a go at things.

Mr Gibson: David, you asked a question about what we could do. Sometimes there is a very simple missing component in the economy, like accommodation for companies. You would think that that wouldn’t be a problem in Wales. I am telling you it is. Finding accommodation for new companies once they are through the incubation phase-

Q114 Chair: What about the WISP scheme: the scheme set up by the Welsh Assembly to get high-quality office space? Has that not been successful?

Mr Gibson: We have not felt it in terms of the availability. Cardiff is obviously overheated in terms of capacity. You might say, why don’t we do more in some of the outlying counties within Wales? I can tell you why: there is nowhere to put the companies that you create.

Q115 Chair: Sir Terry, you mentioned earlier on that you travel a lot around the world looking at the way different economies are developing. What trends do you see? Do you think that growth in China and India is going to carry on over the next 10 or 20 years? I am interested in this. Broadly speaking, we have a rich West and poorer developing world. In 20 or 30 years’ time, do you see that there is going to be parity of wages across what is currently the first and third world, perhaps still with rich and poor, but roughly earning the same amount of money in countries across the world, if that makes sense?

Sir Terry Matthews: David, I think we have a serious problem. What you have seen in the last 10 or 15 years from India and China is just the beginning. You are going to have this higher level world economy problem. There were some major, major goofs, in my view, going back to the 1950s and 1960s with the General Agreement on Tariffs and Trade. Basically, if you review where things are at, it goes a little bit like the following. The rich nations-UK, US, Canada, France and Germany-all said, "We are the people that design and make stuff. If tariffs around the world come down, we can export more." There was a fatal flaw because it is a two-way valve. That is the bit they forgot.

There were other barriers that made difficulties for countries like China and India before. As an example, what kind of barriers? There are trade barriers. That is clear. You try to bring products through a border and there is a tariff. Those tariffs are down to almost nothing now. In the last 10 or 20 years there have been other barriers that have gone. An example is the telecommunications bill. If you called from London to Beijing 10 years ago, it would cost you £5 a minute. Now it costs you nothing. Communications costs are not a barrier.

The next thing is transportation. It was Manchester Liners that designed containers. Manchester Liners said, "Okay the issue is the logistics of not trying to get goods packaged tightly. The issue is the thing that it goes into that has to go on lorries, rail and ships. Make that a standard." That one move throughout the world meant that shipping costs are down at the point that they don’t really matter any more. The shipping costs are not significant. Communication costs are not significant. The western world screwed up by saying, "We will bring tariff barriers down." Now you face the full force of the fact that labour costs in India and China are about one twentieth of the UK and we wonder why we are having trouble with blue collar workers. How can you fight that?

If you take a look at the growth, let’s just take another parameter of this. Take a look at hotels. Use a narrowly defined spectrum of business. If you make systems for hotels, how many hotels were built in the UK last year? Almost none-three. How many were built in China? 2,000. 1,500 were built in India. That takes bricks, concrete, carpets, ceilings, lighting, air conditioning, beds, linen-everything. 2,000 hotels were built in China. All that the local people that make things for hotels have to do is to crank up a little more production and export it. Anybody that was in the business here is going to die because they can’t meet the low costs of China; they cannot.

Q116 Chair: I suspect-in fact I am absolutely certain-you know more about economics than I do, but surely if China is exporting that much to and collecting that amount of foreign currency from Britain, say, Britain will have to export things back to China in services, patents or whatever in order to have the money to pay the Chinese. It all sort of balances out in the end, doesn’t it? It has to.

Sir Terry Matthews: Does it balance out? How does it balance out? How do you take a nation of 65 million people? It doesn’t even make the next decimal place on 1.3 billion. And 90% of the population are rural. They haven’t actually moved into the cities yet. You will see much more automation of the farms, as happened in the UK 100 years ago, and people will keep moving to cities. Buildings will continue to go up and people will continue to work hard at low, low salaries. It is true that 2% or 3% of the population-for that, read 50 million people-will become extremely wealthy, but it is a tiny percentage of the total. We have to face the full force of the lot, and that was before I talked about India, by the way.

Chair: I had better bring in Guto Bebb for a quick follow-up.

Q117 Guto Bebb: I want to go back to the comments that Mr Gibson made in relation to Queen’s University and the entrepreneurship modules. Could you elaborate on exactly what they are doing with that? I am very interested in the issue of having entrepreneurship as part and parcel of every part of academic endeavour. Could you elaborate slightly on what they are doing?

Mr Gibson: They took a fundamental decision that entrepreneurship needed to be a core component of every undergraduate’s education. That alone is not an easy thing to do. You can imagine the wars that kicked off around all the various academic schools. It must have been carnage for a few months, but they stuck by that conviction. "Every student that graduates out of this institution will have an understanding of entrepreneurship."

What else seems to have happened is that all the supporting forces in the economy are now orientating themselves to support that. If you are kicking out all these young, bright people with good ideas, you want to make sure that they are supported, that they are mentored and that they have access to capital. You can see a wind of change going across the province. I think it is absolutely admirable. I would love to see that happen in Wales.

Sir Terry Matthews: Yes; we could do the same.

Q118 Guto Bebb: As a follow-up-and I speak as a member of the coalition here in Westminster-my concern is that, obviously, we are getting rid of the Regional Development Agencies in England, and one of the issues is that, as part of that, a lot of the entrepreneurship projects are being lost. The argument that has been made is that you can’t teach entrepreneurship.

Mr Gibson: Rubbish; rubbish.

Q119 Guto Bebb: I tend to agree with you on that point. Your view is that there is value in teaching this as part and parcel of somebody’s educational achievements.

Mr Gibson: I deal with guys with MBAs all the time. They come in, they have been to some of the best universities in the world and they have done an MBA. They can’t sell. They have studied marketing. They can take you through the four Ps of marketing with great eloquence, but they can’t sell. Does marketing exist to support sales or sales exist to support marketing? It is obvious, but that is typical of a deficiency of someone who has been to a top business school, comes out and hits a crisis point because someone turns round to them and says, "Would you go and sell that for us?" They don’t have a clue.

We sometimes assume that a business school is kicking out exactly what the economy needs. It is not always the case. Entrepreneurship skills don’t need just to be focused out of a business school. We can have entrepreneurs who are biologists. We can have entrepreneurs who are theologians. They can come from all over the map, but we need to mobilise them and we need to show young people that there is an opportunity. It is more fun to create a job than to go and get one. We need to get that message across to young people.

Q120 Mrs James: I am very interested in this. Lots of people that I know are the best sellers who can close the deal, and closing the deal is the important thing. "Okay, sign on the line." They don’t have degrees. They have come up through industry. They may have come up through call centres. What opportunities do you see within your structures for people who may not necessarily have come through the degree route?

Mr Gibson: As the companies mature, you hire outside of the graduate scale. It is interesting, because the old model was that you raised money as a team, you got a dream team together, typically more experienced people, and then eventually you hired graduates to help you out. Our model flips it on its head. We take the grads first, but the composition changes as they succeed. The company Terry told you about has many more mature executives in it now, because they have been brought in to help out. Then you hire people in sales. You hire people to help in tech support and other things. They might not be graduates, but the graduates are pulling the whole system forward and creating a critical mass underneath them.

Sir Terry Matthews: Siân, you have to have faith in the new grads that come out of universities because if they are not the next generation of business people we don’t have a future. You have to get them to be business people and help them to be business people as quickly as possible.

Mr Gibson: Before you think we are delusional, I invite you to look at the top most valuable companies in the world currently. I think you will find they have one thing in common: they were all started by graduates.

Chair: We are running a bit short of time. We have about 10 minutes left, because we have to be there on pain of death-or rather, not getting a meal, anyway. I will call Jonathan and suggest that we try and keep things fairly brisk for the next 10 minutes.

Q121 Jonathan Edwards: As a part of this inquiry, we went to Germany to see how they were working in terms of inward investment. They were investing heavily in terms of trade missions and trade offices in the emerging economies, first, to create markets for their exporters, but secondly, to attract the HQs of the new companies in these countries. Do you think it is a strategy that we should be pursuing with vigour in Wales?

Sir Terry Matthews: No; I wouldn’t invest in it.

Q122 Jonathan Edwards: Why?

Sir Terry Matthews: First of all, you have to have companies that are already exporting all kinds of stuff and suitable for modification product. If you take a look at Germany, their export market for machine tools, cars and appliances and so on is very big. They already have output, and incrementally it doesn’t cost much to make slight changes and ship to Brazil or whatever. It makes sense.

The first thing we need is to have a few companies that are globally capable of selling. Until you have an output that is able to be moved around the world, I do not think we are there. I just don’t think we are there. It would be like another layer of cost and, like many things in life, if it is not efficiently utilised, it is a burden. Personally, if I was king, it wouldn’t be the case. I would not do it. I would put my energy into innovation and new grads starting companies up. I would get the groundswell going and get some enthusiasm, not have people coming out of universities and finding they can’t get a damned job. That has to be really depressing.

Q123 Karen Lumley: You talked earlier about your new venture. How helpful have you found the Welsh Assembly Government and the UK Government in that?

Mr Gibson: I have to tell you that from my experience of the last 21 months it has been fairly arduous, but I wouldn’t point the finger at any politician in the Bay. Every politician that I have spoken to in the Bay thinks this is an absolutely excellent idea. That includes the Cabinet as well. One thing that I do find extremely frustrating is that we are burdened with a civil service in Cardiff that is shaped for Whitehall. It seems bizarre that, whenever you want to do something, there are 10 lawyers telling you that you are in breach of some sort of state aid intervention, market economy rule or whatever. Instead of having a discussion about how you can get things done, the discussion always starts out with, "No. Now what’s the question?" I don’t understand why a small, agile country like we are-or we should be in Wales-is burdened with a civil service that is monolithic in its rule structure and based on something that was set up for this institution and for the nation. We are somewhere between a small Government and a local authority in terms of critical mass and size. Why don’t we have an organisation that can move quickly?

I will give you an example just to prove my point. ProAct was a programme that was brought in very, very quickly, as you know, to support the automotive and manufacturing industries at the time the economy fell off the chart. I sat in ERAP last week-the Economic Research Advisory Panel-and was presented with the outputs of ProAct. It was an excellent programme and it did exactly what it said on the tin. They got that going in 12 weeks, which shows that you can match the British Columbia 12 weeks that we talked about earlier on.

They have been audited six times since. What does that tell you if you are the civil servant who put that together? Don’t innovate; don’t take a risk. There were six sets of UK auditors, Welsh auditors and European auditors. Give the guys a break. We should be celebrating and rewarding programmes like ProAct, not inflicting pain on them through six audit processes.

Q124 Karen Lumley: What was the difference between dealing with the Welsh Assembly Government and the WDA?

Mr Gibson: The WDA was not a perfect organisation, and I sat on it, so I speak from experience. There were issues in the WDA, clearly, but what the WDA was mandated to do was move quickly. A decision could go to the Board of the WDA, the Board of the WDA could make a decision, and, by the way, there was a firewall then to the Minister. If something went wrong, the Minister could say, "Not on my watch. That was their problem." The one good thing about the WDA which we need to recapture was its agility, its velocity, its ability to get things done quickly, which we have definitely lost. There was a time when you were guaranteed on a mandate that, if you put in a grant application, you would get your response and decision within 28 days. Now it is like 28 weeks, and that is not an exaggeration.

Q125 Karen Lumley: The Prime Minister talked last week about the enterprise culture that we are obviously trying to provide. What would be your one bit of advice, both of you, to the Prime Minister to get that moving quicker?

Mr Gibson: I would attack the university culture in terms of entrepreneurship and making it the norm, not the exception. I would mobilise senior business people to act as mentors. In our programme we bring loads of people in who are senior people. I typically ask them to donate one day a year to the foundation. If they are experts in law, investment banking or whatever, do you know what? The response has uniformly been always yes. People want to help; they need to be mobilised. The other thing, of course, to do is that we need to address the fuel issue. If there is no fuel in the tank, you are not going to be travelling anywhere.

Sir Terry Matthews: Whether that comes from tax credits and incentives like that or from a little bit of stick with banks and pension funds and you say, "You will do it. That is the law," it could be either way, but it needs to be done because there is no fuel in the tank.

Chair: We have about three minutes left. Does anyone have any last burning questions that they want to put briefly? If not, would Sir Terry or Simon Gibson want to make any closing comments?

Q126 Geraint Davies: It has been suggested here that Scotland are more agile and more effective in getting inward investment and entrepreneurial activity than Wales. I don’t know whether this is your experience or whether there are any other lessons they bring, or any other lessons you would like to suggest to us finally that WAG, perhaps, or the UK Government could do to encourage what you are describing.

Sir Terry Matthews: I am not sure how to answer that because it is not my experience.

Q127 Geraint Davies: What-the Scotland thing?

Sir Terry Matthews: No. I understand that they have been very successful. I understand that from information I have, but on a personal level I have found the activities I have had in Wales quite good, and clearly I have an advantage there because I travel back and forth frequently.

Mr Gibson: I am not going to answer your question, but I would suggest you look at the speed of decision out of both institutions. There might be a correlation.

Q128 Susan Elan Jones: We have had some previous discussions here on the subject of brand Wales. Do you think there is any mileage in North America, whether USA or Canada, where there are links with Welsh Americans? Do you think those sorts of links make a difference?

Sir Terry Matthews: Yes, they could. I find there are a lot of people in the New York area, the LA area and Chicago of Welsh background. That could be quite valuable, I think. Certainly the Ryder Cup raised the profile enormously.

Q129 Geraint Davies: How important do you think tourism is for Wales? Is there anything more you want to say about the Welsh brand? We talked about the Ryder Cup. In terms of the Welsh brand as a place to invest, what more do you think could be done?

Sir Terry Matthews: We have to play up the fact that there are more castles per square mile in Wales than anywhere else. It has incredible history, whether it is Roman or Norman. We should play it up even more.

Mr Gibson: If you ever read my bio, I always say, "I am married with four children and I live in the beautiful county of Monmouthshire", and I am not kidding. We happen to be blessed in a land where most people would choose to go on holiday.

Sir Terry Matthews: North Wales, the Brecon Beacons: it is a very beautiful part of the world; there is no question about it. The latest generic of young people play games, and I know this is not something I particularly like, but nevertheless there are a huge number of people who play games on Xbox and other things. There are always castles involved. I get friends of mine in business who say, "Where do you recommend I go in Wales to the castles?", because castles are a focus right now of many, many games. By the way, I am not a big proponent of people spending all their life playing games. Nevertheless, in the last 10 years in particular, there have been some very powerful games involving castles.

Mr Gibson: Perhaps we should digitise every castle in Wales and sell it to the game manufacturers.

Karen Lumley: That is entrepreneurial.

Sir Terry Matthews: Raising the profile of castles is not such a bad one. Certainly the Ryder Cup helped worldwide to raise the profile.

Chair: We have a number in Monmouthshire. I was dying to end on that happy and positive note about Monmouthshire, which is the area I represent. I would like to thank both of you very much indeed for coming along and giving evidence today.

Sir Terry Matthews: Thank you very much. It has been a pleasure.

Mr Gibson: Thank you.