Existing market
10.16 Many advanced technologies take many years
to achieve commercial success. Once a start-up company is established,
it can spend money at an alarming rate. As noted by Pond Venture
Partners (p 212), investors therefore expect to see at the
outset that the technology the company is developing meets an
existing market need, not some speculative future need. Apax Partners
indicated that venture capitalists expect significant returns
on a 5-10 year timescale; longer term investments such as long-term
fundamental research require government support (p 135).
Government-sponsored
schemes
10.17 There is a range of schemes encouraging
universities to work in collaboration with established industry.
The DTI noted the support for collaborative research through LINK
schemes and Faraday partnerships (Q 487). The Teaching Company
Scheme and Case studentships supported research students working
in industry.
10.18 Entrepreneurship is encouraged through
various enterprise training schemes (Q 491), the Higher Education
and Innovation Fund (which is £140 million for resources
to handle IP) and the University Challenge Fund (which provides
seedcorn funding to investigate the market potential of university
IP). There was some concern that the University Challenge Fund
was insufficient in many cases to take an idea to the point where
venture capital investment could be sought — as Pond Venture
Partners noted (p 212) this would often cost £150-250,000
rather than the £50-100,000 typically available from the
fund for an individual business proposition.
10.19 This leaves a funding gap that must be
bridged to take promising research results through a market evaluation
to the point where venture capitalists would take a serious interest.
Confirmation of this gap came from 3i (Q 389) and was also
backed up by a recent survey of university commercialisation activities
by the University Companies Association (UNICO) and the Nottingham
Business School. That survey[102]
found that a key impediment to spin-outs was the lack of finance
for establishing proof of market.
10.20 Against the background of the preceding
paragraphs, we recommend that the DTI should consult Universities
UK, the British Venture Capital Association, the CBI and the Institute
of Directors to ascertain: the nature and extent of the funding
gap identified by a number of our witnesses; the lack of suitable
managerial skills available to new high-technology companies;
and such companies' other support needs.
Public sector procurement
10.21 In addition to its role in setting the
policy framework, the Government (both directly and through its
various agencies) is also a major consumer of computing. For example,
the National Health Service (NHS) is already a very large (but
uncoordinated) user of information technology[103].
As advances are made in, for example, bio-sensing and diagnostic
techniques informed by rapidly increasing knowledge of genetics,
there will be massively increased needs in the NHS not only for
computers to manage all the additional data but also for novel
computerised devices for diagnostic and monitoring purposes.
10.22 The Ministry of Defence will also need
a range of better mainstream computing and novel computerised
devices to maintain the Armed Forces' general preparedness. At
the leading edge of computing, the world-class activities of the
Meteorological Office on weather forecasting and climate change
turn crucially on access to very high-powered supercomputing.
10.23 When we discussed these matters with the
Minister, he accepted the need for the Government to be an intelligent
customer, and distinguished this from providing an easy market
or subsidy for the industry (Q 510). The Director General
of Research Councils, Dr John Taylor, reinforced this by emphasising
the need for the Government only ever to buy in competitive mode
in the world market (Q 511).
10.24 We fully agree that the Government should
not be a soft touch, but note that the US government seems less
inhibited about actively stimulating domestic industry (and the
R&D that supports it[104]).
We feel that the UK computing industry could benefit from a more
strategic Government view of procurement. We therefore recommend
that the Government should consider whether the aggregate future
public sector demand for computing capacity, in all its forms,
can be articulated and communicated in ways that better assist
not only the public sector but also the industry.
The role of the private
sector
10.25 We discussed in paragraphs 7.32-7.35 the
case for individual companies and those in the finance sector
to attach greater value to R&D. As noted in paragraphs 3.21
and 4.25, the chip technology and design matters at the centre
of our Inquiry are not the products that will capture the imagination
of the mass market. They are, however, the crucial facilitators
of those new high-technology mass market products.
10.26 We suspect that this chain of interrelationships
— which works in both directions — is insufficiently
understood. Accordingly, we recommend that Intellect[105],
the British Venture Capital Association and others they think
appropriate should consider ways of better informing and enthusing
UK industry and the wider finance sector about projected advances
in high technology, with the aim of not only stimulating the necessary
long-term support for these advances but also, in a two-way dialogue,
encouraging the development of new products for the global marketplace.
Summary
10.27 In conclusion, there are many encouraging
signs that the environment for entrepreneurial activity is improving
in the United Kingdom, and many universities are taking effective
measures to exploit the opportunities presented by high-tech spin-outs.
The position would be enhanced if there were a greater commonality
of approach. The critical points, however, relate more to the
general culture and are therefore harder to address: the availability
of experienced senior management, and the clustering of entrepreneurs,
financiers and technologists to achieve critical mass.
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