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Innovation funding myths exploded

Mr David ConnellWhy the British government and the EU should take a lead from America in their approach to procurement based innovation policies

The British government and the EU should take a lead from America in their approach to procurement based innovation policies, says David Connell, Senior Research Fellow at the Centre for Business Research, Cambridge Judge Business School.

In his seven year long campaign he has made submissions to a House of Lords Select Committee on Science and Technology as well as addressing EU leaders on the use of procurement to stimulate innovation.

He feels his experience in the technology sector and investing in new companies has revealed that government support for research and development is lower and less relevant than that provided by the US government through its procurement programme.

The American Small Business Innovation Research (SBIR) programme requires, by law, all government agencies to identify areas where they believe they need new technology either to meet their policy objectives or to improve their own operations. These are advertised and companies apply.

“Winners first get a US$100k for a feasibility study and roughly half of those go on to win a three quarters of a million dollar contract to develop the technology to demonstrator or prototype stage.

“Whilst this is substantial programme it is really just the first step on the ladder of procurement in the US. There are a number of programmes that deliver much more money in the form of contracts to businesses especially small businesses.”

David Connell and his colleagues at the Centre for Business Research also looked into the use of development contracts, to start and grow companies, across different sectors in Cambridge’s vibrant economy.

Taking in the most successful companies in the engineering, physics and biotech sectors, their findings exploded three myths which have underpinned policy thinking in the UK and elsewhere decades.

First – innovation is, contrary to popular belief, about solving customers’ problems not about academic invention.

Second – the key source of finance is from customers who want technology developed on their behalf. Venture capitalists are involved at a much later stage if at all.

Third – there is little appetite amongst the entrepreneurial, successful companies to use the traditional collaborative R&D programmes.

Invited to speak to the European Competitiveness Council, David Connell argued that policy was based on three major myths and that one of the best things the EU could do would be to encourage development contracts by small businesses, all businesses, with lead customers.

“It was very well received and I had a number of comments from individual ministers and others that this is the direction in which they would like to see policy moving. The Commission has already made a strong commitment, in principle, to adopt that kind of policy in the next European framework programme.

“I believe the Commission should take a millon euros a year out of the next R&D programme and use that to co-fund a US-style SBIR initiative in individual member states. There is a lot of interest in that idea.”

Prior to his work at the Centre for Business Research, David Connell was the founding Chief Executive of the Cambridge-based venture capital fund TTP Ventures, which specialised in early stage science and technology-based projects.