Why we’re on a mission to close the innovation funding gap

For the last few months we’ve been planning a new summit centred on accelerating investment in innovative regional businesses. We launched the event at the beginning of August, the day after Deloitte, Innovate Finance, and the ScaleUp Institute published a new piece of research that called for urgent action to close the UK’s growth capital gap.

The report follows two other major pieces of insight, which together highlight the need for a greater focus on filtering innovation funding out of the golden triangle and into the regions, echoing the discussions the Accelerating Investment and Innovation Summit will bring to life.

The 2017 Beauhurst Funding Innovation report presented the staggering regional imbalances that exist in the UK with regards to innovation finance, suggesting the North East receives less than 4% of the total innovation grant and equity funding available in the UK.

In 2020, it seems that not much has changed across the national funding landscape, with a recent Nesta report (The Missing £4 billion, May 2020), suggesting an investment of £1.6bn is needed in the North to help rebalance national spend in Research & Development.

As we all know, this year has been an unusual one. The pandemic has had an untold and ongoing impact on global economies, and at the same time UK industry is preparing to leave the EU. Yet, from the work we do in supporting business innovation, we can see the North East’s innovation pipeline is as strong as ever. Anecdotally, companies are pivoting with agile business models, alongside new products and services, in response to the Coronavirus outbreak and its impact on business.

Whilst this is good news, at the same time the funding landscape against which businesses in the North East are supported to innovate is substantially underfunded.

So, what can we do, and what have we been doing, to tackle this imbalance?

A big part of the problem is about visibility. The UK Business Angels Association (UKBAA) regularly survey their membership, and a desire for south-based Angel investors to work with North businesses regularly comes out as a positive theme. The issue lies in bringing the two together.

Our Access to Finance programme was launched in 2016 with a clear aim of building a diverse investor community in the North East and connecting innovative businesses with the equity investment and grant or loan funding they needed to grow. As part of this activity we have taken entrepreneurs to London and we have attracted investors North, bringing the two together in one-to-one or one-to-few pitch events and meetings.

This has been hugely successful, supporting several hundred businesses on their funding journeys and helping to establish an investor network in the region through the Newcastle Angel Hub, which we launched in partnership with the UKBAA and Invest Newcastle in 2019.

In addition, last year we won £1m in grant funding from Innovate UK to deliver a Regional Angel Investment Pilot for the North, working in partnership with the North East BIC, Leeds-based NorthInvest and the UKBAA.

The pilot has successfully supported Angel investment into seven businesses from across the wider North of England, including Durham-based Evince. A total of £710k of Angel investment has been raised alongside the Innovate UK grant and other investors, with the Newcastle Angel Hub and NorthInvest working with a significant pipeline of opportunities.

Designed to be a two-year programme, demand from Angels and the quality of North businesses seeking support meant that the grant has been spent in half the allotted time. Whilst this is a positive result, it raises an important question. If there is such demand and quality, why does a large funding gap remain?

This brings me back to the Accelerating Investment and Innovation Summit. We work with partners up and down the country, and with regional and national investor syndicates, because we recognise that the North East’s innovative businesses benefit when we come together. As a region, we need to have conversations about access to innovation finance at a national level, and we need everyone to be around the table.

The Summit is designed to build on the strength of our collaborative approach. It will bring national policy makers together with regional businesses, investors, fund managers and corporates and raise the issue of a £1.6bn funding gap in Innovation, which is holding back Northern SMEs.