Science and TechnologyWritten evidence from the Technology Strategy Board

Introduction

1. The Technology Strategy Board is a business-led organisation with a leadership role to stimulate technology development and innovation for the benefit of UK business in the areas which offer the greatest potential for boosting UK growth. The organisation operates across Government and advises on polices which relate to technology, innovation and knowledge transfer. The Technology Strategy Board is the UK innovation agency and acts as the prime channel through which the Government incentivises business-led technology innovation.

2. The Technology Strategy Board was established in July 2007 and has invested more than £1 billion to date, the majority of the funding being matched by business. It has directly supported around 4,000 companies and works with nearly every University in the UK as well as many further education organisations.

3. The route from idea to new product or service is neither straightforward nor always linear, requiring lots of different interactions. In our strategy for the period 2011–15, “Concept to Commercialisation”,1 we set out the role of the Technology Strategy Board in providing financial stimulus to support R&D and innovation as well as the importance of connecting the innovation landscape. This involves supporting interaction between the science base and business at earlier stages of research & development as well as between business and private sector investors at the later stages of commercialisation.

4. Our partnership with Research Councils UK (RCUK) enables the Research Councils to take advantage of the business-led expertise of the Technology Strategy Board in catalysing innovation in focussed priority areas; and enables the Technology Strategy Board to capitalise on the Research Councils’ role in funding and influencing excellent research and knowledge transfer—so that both are more effective in strengthening the knowledge-based economy and attracting inward investment.

5. The commercialisation of research and the support of innovation across the economy are vital to deliver future products and services and to generate economic growth. The Technology Strategy Board welcomes the Committee’s inquiry and we make the following points in response to the specific questions raised by the Committee.

Question 1—What are the difficulties of funding the commercialisation of research, and how can they be overcome?

6. Looking firstly at funding the commercialisation of research by public sector organisations, bodies such as the Technology Strategy Board operate against a set of rules which underpin the types of support which can be provided. This includes the need to demonstrate market failure and additionality and to operate within European State aid rules.

7. Market failure, as set out in the Treasury Green Book,2 refers to “where the market has not and cannot of itself be expected to deliver an efficient outcome”. We therefore need to ensure that the projects we are supporting address the additionality criteria and we are not supporting projects which the private sector should support. European State aid rules govern how far we can help a business take a product through to commercialisation. The rules generally allow the funding of R&D and innovation projects up to the development and demonstration of prototypes but not beyond, although there is greater flexibility for early stage SMEs.

8. Looking at the question from the perspective of a business, it is usually the case the closer the research gets towards commercialisation the higher the costs tend to be and accessing the necessary funding and skills becomes more of an issue. The development and demonstration phases tend to be the phases where there is the highest level of risk and also the highest cost.

9. The deployment of wave and tidal devices or the need to undertake clinical trials for the introduction of a new medical product are two examples where moving from research towards commercialisation is a huge step. The level of funding needed can be significant and even if the required performance can be achieved, doing so at the necessary price point can be a major hurdle. In some cases this can be made more difficult if regulatory or environmental compliance is lengthy and costly in the home market or overseas.

10. To overcome these issues, we are looking at ways of better joining up with other parts of the innovation system to help businesses move innovative projects closer to commercialisation more easily. This includes developing better connections with the private equity community who can fund projects through to commercialisation as well as working with experts in areas such as design, IP protection, legal and corporate finance advice, business coaching and mentoring providers, incubators and accelerators.

11. The European Commission is currently undertaking a consultation on the “Review of the EU state aid rules for research, development and innovation”.3 We will be providing input to that review looking at how the rules can be improved to enable us to provide better support to business, particularly towards commercialisation.

12. One of the key issues of bridging the gap between research and commercialisation is scaling up and demonstrating technology. One of the advantages delivered by our programmes, and where we have achieved some of our biggest successes to date, is the ability to demonstrate at scale. We have supported large scale demonstrators such as the Retrofit fit for the Future programme with 87 dwellings in the UK being used to assess the potential of new approaches to reducing the environmental impact of the current housing stock. The Low Carbon Vehicles Innovation Platform demonstration programme trailed 340 low carbon vehicles on the roads in the UK helping to test and validate the technology and to understand the user issues. The Innovation Platform is expected to continue for up to 10 years, and co-ordinates the UK’s low carbon vehicle activity from initial strategic research through collaborative research and development, leading to the production of demonstration vehicles and the strengthening of supply chains. The long term nature of the programme, agreed with all stateholders, is important in developing the long term vision and for engaging with business who want a consistent approach.

13. We are also in the process of implementing the DALLAS programme which is currently being developed to test out assisted living technologies with approximately 50,000 users across the UK. Only by undertaking these trials, too expensive for any one company to do on its own, will business be able understand how technologies and systems work in practice which can then feed into their development pathways.

14. The Technology Strategy Board has an annual budget of approximately £330 million per annum to support R&D and innovation activities across the economy. With the three demonstrator programmes mentioned costing over £20m each there is a limit to how many we can run, which is why the Government in the Autumn statement provided an additional £25 million to deliver another demonstrator. There are opportunities to do more.

15. To further support the UK’s capability to commercialise research, we are currently putting in place a network of Catapult centres. As well as the core support the centres provide, we expect them to have a much larger impact on the overall innovation system in the UK and a greater impact on supporting the commercialisation of research. The Technology Strategy Board, RCUK and the Funding Councils are developing a joint strategy to encourage collaboration between the research base and Catapults to maximise the benefit to the UK’s innovation landscape.

Question 2—Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors?

16. The Technology Strategy Board works across the economy and has a good view of the problems faced by different sectors. Examples include the high costs for the development, deployment, testing and validation in the energy sector such as for wave and tidal devices or the long timescales it often takes to move research to commercial product in the life sciences and healthcare sectors as well as regulatory environment in which companies must operate.

17. Distruptive technologies can be particularly difficult to commercialise and we have developed an Emerging Technologies and Industries strategy4 exactly for this scenario. The strategy has four themes: invest in demonstrators, generate critical mass, create a nationally co-ordinated programme and nurture capability.

18. The difficulties however tend to relate less to specific areas of science and engineering and more to a set of generic issues. The journey of moving a concept through to commercialisation is often complex, requiring many different steps and interactions. There are a number of problems and challenges which we consider impede this journey, in particular:

Business investment is too low and too late—The immaturity of technology leads to uncertainty about time to market, development costs and commercial viability. Small businesses in particular lack the capital to invest and are seen as higher risk investments by capital providers. Investment in new and emerging markets is delayed because total market size and rate of development is uncertain. Many businesses will wait until the market development is clearer and are likely to miss valuable opportunities.

Innovation disrupts value chains and business models—New technologies, and technologies newly applied to existing markets, can disrupt existing relationships and value chains. Bringing new technologies to market requires discussions and relationship building with multiple players—public (standards, regulation) and private (suppliers, competition). This requires time, effort, knowledge of players in new technologies and the ability to bring parties together which is generally beyond the capabilities of individual businesses, particularly SMEs.

Longer term trends not visible to all players—Longer term opportunities can emerge from emerging technologies, new uses of existing technologies, cross over applications from one sector to another, new challenges for society, or new government policies. These are not always visible to all players.

Innovation infrastructure complex and inefficient—The public (and private) innovation system is complex, fragmented and often difficult to navigate. Information and knowledge does not flow optimally through the system.

Government does not make best use of its levers—Government action in areas of procurement, regulation, standardisation and fiscal incentives shapes markets, but not always in a way that benefits UK business the most.

19. In supporting the commercialisation of research, there are some issues although not directly linked to the difficulties of funding, which do have an impact on the ability to commercialise the research. There are issues such as making the first connection and bringing business, particularly SMEs, together with academia. There are often differences between business and academia in the language used and also in expectations in terms of timescales and the value of intellectual property. These issues largely come down to a lack of understanding from both sides as to how each other operate.

20. It is important to help the business and academic communities forge closer and better relationships where the translation of research happens more naturally. The initial engagement can be achieved through tools such as innovation vouchers or support such as that provided by the Knowledge Transfer Networks where there is the capability to put a company in touch with the best academic to meet their needs, which might not necessarily be the closest. The relationship can then be taken forward through different routes such as collaborative R&D projects which provide a focus for the relationship. The Technology Strategy Board’s connect platform also provides a novel way for business and universities to network, collaborate and share knowledge online.

21. The network of Catapult centres will add a new dimension to the support being provided, giving companies access to the equipment, facilities and expert knowledge in the centres which would otherwise be unaffordable or unattainable for small companies.

Question 3—What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur?

22. Academia and business operate on a global basis and value chains are increasingly global in nature and so it is likely the value from UK research will not all be generated in the UK. Universities are increasingly seeking private funding from overseas to support spin-outs and with large companies manufacturing in many locations, the commercilisation of research overseas may be the manifestation of a healthy global manufacturing presence. Other factors include the need to compenstate for only having a small domestic market by developing new products and services where they are most likely to be exploited and a difficult regulatory environment making it easier and more efficient to obtain approvals and access markets overseas.

23. There is evidence of early stage companies that have moved their focus to the US in order to access the necessary funding for comercialisation and scale-up, such as from the US venture capital sector and the US Government through the SBIR programme. For example, a UK academic spin-out became a US registered company so that it was able to access support through the SBIR programme in order to get the funding needed to move the business forward. A condition of SBIR is that the company must be registered and have a US base. Although that particular company has a growing footprint in the UK, such a move away from the UK could well lead to a greater shift to the US overtime.

24. It is necessary to accept that we are in a global market and so can expect some offshore ownership. The issue is how to get non-UK companies to spend and anchor their R&D money in the UK, including through centres of expertise such as the Catapults and by creating a favourable investment environment.

Question 4—What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research?

25. There are a number of studies conducted over the last 3 years showing the impact of the initiatives supported by the Technology Strategy Board, in particular Collaborative R&D,5 Knowledge Transfer Networks,6 Knowledge Transfer Partnerships 7and an early assessment of SBRI.8 The economic evidence of impact of our programmes shows in the region of a 10 to 1 return on investment with an indication that our more recent “demand led” approach is delivering higher returns. The evidence shows that 83% of the projects supported will deliver products or services likely to reach the market and that the majority of businesses would not have invested in the project without government support. Other impacts demonstrated include collaborative R&D projects delivering on average an additional net 33 jobs per project and softer impacts such as enhanced image and reputation and skills for the businesses involved.

26. The evaluations of individual schemes do not however demonstrate the impact of the Technology Strategy Board overall such as the role we play in the innovation system and the value we add through our convening power, bringing communites of people together from different backgrounds to move an area forward. A review of the Technology Strategy Board will be carrried out during 2012.

Question 5—What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death?

27. Taking into consideration the time lags in the system, the true impact of the Government’s strategies in these areas may not be known for some time. We do however feel that the Government’s strategies provide a framework and contain all the elements necessary to help reduce the impact of the “valley of death”. The next stage is very much the co-ordination of all the different activities, both public and private, to ensure the sum is more than the individual parts.

28. The Government provides a wide range of support including investment in the knowledge base, advice and guidance, funding to support R&D and innovation projects (grants, contracts, equity investment through funds of funds), through to infrastructure and centres. To help address the valley of death the various forms of support need to be used collectively and in a way that efficiently and effectively moves an idea from concept to commercialisation.

29. There is one vital ingrediant necessary to underpin this approach which is continuity, both of funding and commitment, over the long-term.

Question 6—Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved?

30. The simple answer to the question is yes. It is important to create an environment which encourages such investment to happen. The Enterprise Investment Scheme, Seed Enterprise Investment Scheme and Venture Capital Trust tax reliefs are examples of where the Government has put in place support which helps to encourage such investment and are viewed positively by business and at the same time felt to be under publicised. There is also potential to attract more foreign investment into the UK.

31. As well as creating the environment, a potential way of addressing the “valley of death” is to create better linkages between the support provided by the public and private sectors. The Technology Strategy Board support of R&D and innovation projects provides a way of de-risking the technology, therefore making it more attractive to potential investors. Each project funded will have been selected from a wider number of applications and been subjected to a technical and financial assessment. By the end of the project, in most instances, the technology will be closer to market making it more attractive to potential investors.

32. We are currently looking at ways of providing greater visibility of the businesses and projects we support as well as making the best connections to the private investor community, including working with organisations such as Capital for Enterprise. We are looking at the potential to use an online database of projects seeking support as well as creating opportunities where companies needing finance can meet with or pitch to those looking to invest. This approach was trialled recently as part of the Tech City Launchpad competition. Companies successful in obtaining a grant of 50% from the Technology Strategy Board were given up to 12 months to obtain the other 50%. To help them obtain the funding, companies were brought together with potential private investors and provided with access to other business support, such as organisations providing “investment readiness” training and business coaching and mentoring.

33. There should certainly be an encouragement of more private equity investment into science and engineering. The soultion rests with creating the right environment and the need for greater communication and visibility, creating the linkages between those seeking finance and those looking to invest.

Question 7—What other types of investment or support should the Government develop?

34. It is our view that Government does not necessarily need to introduce new types of support, but ensure the greater use, co-ordination and alignment of existing support. Our strategy “Concept to Commercialiation” as well as the Government’s “Innovation and Research Strategy” both set out plans for the greater co-ordination of publically funded support, together with building the links to sources of private funding.

35. There is the opportunity to do more to support the commercialisation of research by government acting more as a lead customer, supporting innovative ideas which address policy challenges faced by government departments and the wider public sector. The combination of a potential government contract and the use of a mechanism such as SBRI can help to rapidly move research towards commercialisation. The first customer can be the lifeblood of a new company and so a contract from Government to support R&D such as through SBRI has the potential to have an enormous impact. Our experience of the projects we have supported through SBRI is that they are particularly attractive to the private finance community.

36. A good example is Eykona Technologies, a company spun out of University of Oxford in 2007, which is developing a wound measurement device. The company won funding through SBRI in October 2010 and since then has raised £2.4 million of private funding and grown from 4 to 14 employees.9

37. Schemes such as Smart can help companies access funding of between £25k and £250k, often the level of funding needed to get an idea off the ground but difficult to access from private sources such as institutional investors and banks. There is huge demand for funding through Smart and at present only the best of the best projects are funded.

38. The Catapult centres are a new edition to the innovation landscape and will once established will play an effective role in helping with the translation and commercialisation of research. The Innovation and Research Strategy announced that the Technology Strategy Board would be responsible for delivering innovation vouchers and again they have a role to play helping to create the initial engagement between SMEs and academic institutions. There are also other models which are showing promise such as the Easy Access IP model developed by the University of Glasgow.

39. The new Business Coaching for Growth programme will be important in ensuring that high-growth SMEs (including those that seek to take research-led business ideas to commercialisation) have access to support in developing their commercial capabilities and connecting with private sector sources of early-stage funding. We will work actively with the BCG providers to signpost this service to appropriate companies.

40. The Technology Strategy Board and the Research Councils are working closely together developing joint strategies and co-ordinating and aligning activities in a number of areas. An example is the recently announced Biomedical Catalyst Fund, a joint activity between the Technology Strategy Board and the MRC aiming to help the commercialisation of MRC funded research. Another example is the Innovation and Knowledge Centres (IKCs) which are centres of excellence with five years’ funding to accelerate and promote business exploitation and to build critical mass in an emerging research and technology field. Their key feature is a shared space and entrepreneurial environment, in which researchers, potential customers and skilled professionals from both academia and business can work side by side to scope applications, business models and routes to market. To date, six IKCs have been supported.10

41. The key activity across all of the areas is joining up the support and making it simple and easy to access. There is the potential for more co-ordinated strategic programmes between the Research Councils and the Technology Strategy Board to ensure continuity of support across the innovation system. There is the potential to do more through schemes such as SBRI and Smart and to ensure new activities such as the Catapult Centres and Innovation Vouchers form part of the overall support system.

Conclusion

42. The valley of death is not something unique to the UK and is an issue countries globally are trying to overcome. The need however to move ideas more rapidly to commercial products and services is vital to generate economic growth. More needs to be done in a more joined up manner to make the UK a truly attractive investment proposition in terms of fiscal measures, skills, labour flexibility, supportive regulatory environment and facility to navigate.

43. We need to create a favourable environment in the UK which supports investment and makes the UK an attractive proposition for overseas investors and companies looking to fund and locate their R&D here. The Government could act more as a lead customer and ensure that approvals processes, which can be lengthy and costly, do not unduly impede a companies progress. There needs to be a higher level of co-ordination of the existing support that is available to help businesses and to more effectively create the links between the support provided by the public sector and the private investment community.

44. Long-term continuity of funding and commitment are vital. A lot of the basic ingredients are in place or in progress. Co-ordination of effort is now what is needed.

Case studies of projects supported by the Technology Strategy Board can be found at—http://www.innovateuk.org/publications/case-studies.ashx

February 2012

1 www.innovateuk.org/_assets/0511/technology_strategy_board_concept_to_commercialisation.pdf

2 www.hm-treasury.gov.uk/d/green_book_complete.pdf

3 http://ec.europa.eu/competition/consultations/2012_stateaid_rdi/

4 www.innovateuk.org/_assets/pdf/corporate-publications/tsb_emergingtechnologiesstrategy.pdf

5 www.innovateuk.org/_assets/pdf/publications/pacec_evaluation_of_crandd_report.pdf

6 www.innovateuk.org/content/press-release/knowledge-transfer-networks-reviewed.ashx

7 www.innovateuk.org/_assets/pdf/corporate-publications/ktp%20strategic%20review%20feb%202010.pdf

8 www.nesta.org.uk/publications/reports/assets/features/buying_power

9 Video cases studies - www.innovateuk.org/content/case-study/sbri/nhs-east-of-england-healthcare-competitions.ashx

10 www.epsrc.ac.uk/funding/grants/business/schemes/Pages/ikcs.aspx

Prepared 12th March 2013