Impact case study database

A number of significant investment policy and programme impacts resulted from CEEDR’s research findings. These impacts have been principally in the UK but also extended to the EU, through the European Angels Fund, and Owen’s current advisory role on the design of South Africa’s new Sovereign Innovation Co-Fund. Impacts of this evidence base are apparent through the: (i) expansion in scale and scope of public co-finance venture capital to meet SME early-stage funding gaps; (ii) creation and development of innovative SME finance schemes to ensure maximum positive impact.

(1) Expansion in the scale and scope of public co-finance venture capital

In 2013, CEEDR, working in collaboration with SQW, were commissioned by the GLA to research the provision of finance to SMEs in London. The resulting report, SME Finance in London, identified a Series A finance gap for potential high growth (PHG) SMEs and recommended the creation of a co-investment fund and the targeting of digital technology companies [5.1], with the results presented to London’s Deputy Mayor. The London Co-Investment Fund (LCIF), subsequently established in 2014, drew directly upon the findings of this research. A GLA official stated that this research discovered: “ a significant gap [in finance] and identified areas for potential public intervention and highlighted some potential areas of focus. This evidence was crucial in making the case for a publicly-backed finance initiative for SMEs which was subsequently developed and agreed by the LEP and the Mayor” [5.2]. The LCIF has since fully invested its £85m fund (£25m public funding), targeted at early-stage science and technology businesses, providing funding to 129 innovative PHG digital/technology SMEs by 2019.

CEEDR’s reputation for research into SME finance led BEIS/BBB to commission CEEDR in 2014 to lead evaluations (in conjunction with BMG, Lewis and Mason), of the UK’s flagship early-stage SME PHG innovation co-finance programmes: the £450m Enterprise Capital Funds (ECFs) and the £100m Angel Co-Fund (ACF) [5.3]. The evaluation of the ECF’s £450m public-private co-financing demonstrated positive additionality and demand for larger-scale follow-on funding, especially above £2m. These evaluations recommended boosting ECF follow-on investment capacity to optimise benefits and led directly to additional programme funding. The process of ministerial review between BEIS and the Treasury in 2014 was strongly influenced by these findings. A BBB official stated: “ The evaluation has directly supported additional programme funding.  At Budget 2017, the Government committed to maintaining the ECF programme with up to £1bn of commitments over the next 10 years.  Key data used from the reports include information on finance additionality, company size and growth potential, as well as the role of the funds in addressing market gap” [5.4]. In total, the UK Treasury used this data to obtain an additional £1.4bn public funding commitment over 10 years; a near quadrupling of the first 8 years of ECF funding. To date, this has led to the creation of 31 funds, including 16 new VCs to the UK market, and £1.36bn investment in over 550 SMEs.

Findings from CEEDR’s Early Assessment of the UK Innovation Investment Fund identified the UK’s widening innovation patient capital gap. Alongside findings from the ECF evaluation, BEIS used this as key evidence in favour of raising the EU state aid cap from £2m to £5m per company per annum; a change agreed in 2014 [5.4]. Within the CEEDR-led evaluations of the Enterprise Capital Funds and Angel Co-Investment Fund, major regional disparities in VC funding across the UK were identified. This prompted the BBB and angel networks to seek to develop a greater regional presence, leading to the BBB subsidiary British Business Investments establishing the Regional Angels Programme in 2018 [5.4; 5.5].

(ii) Creation and development of more effective innovative SME finance schemes

The identification of the importance of business investment readiness in how effectively SMEs made use of finance led to Owen and SQW working in active collaboration with Oxford Innovation’s (OI) business finance advisors from 2016, to improve their understanding of the market segmentation of SME finance and growth within their support programmes. This work directly informed the design of OI’s ERDF funded Access to Finance (A2F) programme for Cornwall, established in 2017, which had assisted 877 SMEs by 2018. The CEO of Oxford Innovation stated: “This has been a very helpful collaboration and the resultant [ERC] report [2016] has been used to inform the design of the new Financial Readiness Project that is being funded by DCLG to provide services to 550 businesses to enable them to identify and secure appropriate finance to grow their business” [5.6].

Ongoing government concern over how access to finance for innovative PHG SMEs might be constraining their growth, led BEIS to commission CEEDR to produce a report entitled the Innovative Firm’s Journey to Finance [5.7]. This identified the disconnect between UK grants and private investment and the widening UK patient capital gap report and recommended tackling this through encouraging seed to Series A private VC investment. Following submission to the Treasury Patient Capital Review (2017), its findings were subsequently used by UKRI (Innovate UK) to inform the establishment of the £50m Investment Accelerator Pilot (IAP) in 2017. The IAP sought to overcome the disconnect identified in the CEEDR report through matching seed VC to IUK grants. UKRI testimony [5.8] stated the Report was: *“...key in providing some of the evidence to support the initial pilot. The Report outlined a number of structural issues with patient capital... The critical importance of grant funds for early stage was acknowledged, as well as the problems of achieving sufficient… matching funding… this suggested a need for improved grants and matching funding.” * UKRI subsequently commissioned CEEDR/SQW, to evaluate the IAP. Findings from this ongoing evaluation were used to justify the further expansion of this programme (to £75m), notably through co-financing with regional angel investor networks, as for example in South West England.

Research led by Owen with CEEDR colleagues, played a leading role in setting the policy agenda on low carbon innovation finance for SMEs [5.9]. Results of the Innovative Firm’s Journey to Finance report, together with earlier findings from evaluations of the Enterprise Capital Funds and Angel Co-Investment Fund, were influential in helping Clean Growth Investment Management (CGIM) establish the BEIS Clean Growth Fund in 2020. A managing partner of CGIM stated the key role of these publications “... in making the case for addressing the cleantech innovation patient capital gap at Series A stage in the UK. They also provided guidance for best practice operation and scale for public-private co-financing VC funds” [5.10] . This new £40m fund has the potential to grow to over £100m when private funding is further raised. CGIM will draw upon research led by Owen on the role of environmental metrics [5.9] in their selection of the best business cases presented by early stage Cleantech SMEs seeking access to the BEIS Clean Growth Fund.