Chris Reichhelm, MD, Peloton Advisors
This blog accompanies the GCV Advanced Materials Society November 10th conference and report, ‘Venturing in the advanced materials and manufacturing nexus’, which is sponsored by Peloton Advisors, Innovate UK, Enso Ventures and Norton Rose Fulbright. Peloton builds boards and management teams for young technology and engineering businesses. Working with private and public companies, the main sectors of interest include Advanced Materials, High Tech & Electronics, Industrial Biotechnology and Software.
You know the argument about how Britain excels at innovation but seriously struggles with commercialisation? I don’t think there’s a technology conference I’ve attended in the last decade, or a technology study I’ve read, where this hasn’t been featured or mentioned. Reasons cited have usually included a shortage of capital, a cultural aversion to risk, and a lack of relevant skills or experience.
At some point, all of these things have been true. What’s more, it is the combination of these factors that has made commercialising young British technology and engineering businesses that much more difficult. But the UK scene has transformed in recent years and many of the old excuses for our lack of success no longer hold true.
For one, the UK now has more than enough capital available to back its start-ups. Groups like Imperial Innovations, IP Group, Woodford Patient Capital, Cambridge Innovation Capital and more recently, Oxford Sciences Innovation, the new £320 million Oxford-based fund, all actively provide support to IP-rich companies at early stages of development. These are sizeable funds capable of supporting businesses from inception through ‘B’ and, in some cases, ‘C’ rounds of investment.
The government’s innovation agency, Innovate UK, awards vital grants to many early stages businesses, providing a bridge from research funding to commercial, private sector backing. Since 2007, Innovate UK has invested over £1.5bn in innovation, matched by a further £1.5 billion in partner and business funding.
And let’s not forget the plethora of business angels, technology transfer groups, corporate venture capital funds, accelerators and crowdfunding platforms, all providing access to capital and support for young businesses.
So much for the perceived lack of capital, what about the UK’s aversion to risk and its fear of failure? This too has been cited on numerous occasions as a reason for Britain’s failure to develop more robust businesses. Yet 2015 is set to be a record year for new business creation, with more than 600,000 new businesses expected to be established. This will break the previous record set in 2014, which broke the previous record set in 2013. Setting up a business is a very risky venture. With these numbers, I think we are seeing a cultural transformation taking place and we are becoming less-risk averse than we have been in the past.
This leaves us with management.
I’m a recruiter and I run an executive search group that builds boards and management teams for young technology and engineering businesses. How convenient for me to address this as a key reason, you might think, given my interests. But bear with me.
For young technology and engineering businesses in this country, there is excellent talent. Recruiters like me wouldn’t have much of a business if there wasn’t. But without wishing to over-generalise, we are missing something that is vital to the growth and scale up of these young companies.
This ‘missing link’ is the ability to transform technology – our innovations – into a form that is suitable for a customer’s requirement. This is not about technology innovation. Rather, it is about taking technology from the lab and transferring it into an application or a device that matches a major blue chip corporate’s standards, disciplines, economics, processes, supply chain and environment/health & safety considerations. This is about ‘customer-centric’ application engineering. And quite simply, we do not have enough of this capability in the UK.
Like many, I used to think that Britain’s collective failure to commercialise was based on poor business development skills. The more I’ve worked with businesses in IP-rich areas, however, the more I’ve come to realise that it’s got less to do with negotiating ability and more to do with Britain’s ability to get technology onto platforms that clients can use. It is this crucial skill that is preventing us from commercialising our innovation on a grand scale.
So how can we address this?
The first thing is that boards and executive teams need to be aware of it. Early on in a company’s development, the parties involved in guiding young businesses need to be thinking about how and when to actively engage in application development. This is tricky, given that determining where a platform technology should place its bets is one of the critical challenges facing such businesses. From what I’ve seen, however, the time when a young company starts to engage seriously with corporates is the time when they should be making these decisions.
This is especially true of companies with licensing models, where the tendency is to leave the application development to the potential licensee. Too many British IP-rich companies with licensing as their business model fail to take application development seriously enough. I believe that it is this failure that prevents many of these companies from progressing further.
Secondly, at the point when a board believes the time is right, they need to recruit talent into the team to lead this application development. This is not the responsibility of the CTO. Product or application development is not the same as technology development, and these two roles should be separate. They represent very different skill sets and should be led by different individuals. What’s more, the CTO and Product or Application Delivery lead should be peers. One should not report into the other.
The final thing is that the organisation needs to develop a maniacal focus on customers. This sounds obvious, and it probably is, but too many young British companies do not posses this mindset. Instead, many see their time with young businesses almost as a continuation of university, with a chance to further explore the capabilities and limits of the technology. For many, it is less about customer requirements and more about their own interests.
This will be controversial but I do wonder whether the British are at a cultural disadvantage on this last point. British technologists are renowned for their brilliance, creativity and particular way of working. They excel at innovation and invention. They know their own mind and are fiercely independent. The culture of many of their young businesses is similar in nature and it makes me wonder just how comfortable they are when dealing with a corporate’s priorities instead of their own interests.
The UK has come a long way towards serious value realisation. There is capital, ambition and willingness to try new things. Over the past ten years many of the obstacles that have traditionally been in our way have been removed, placing us closer than ever to a new era of value realisation from these young businesses. But we will only succeed if we can demonstrate mastery of the mindset and skill set highlighted here. It is these that will impact our ability to succeed more than anything else.
 Source: Innovate UK – https://www.gov.uk/government/organisations/innovate-uk
 Source: StartUp Britain – http://www.startupbritain.org/