UK still a "nightmare" for start-ups, says Stelzer
25/10/2006
"If we don't meet that challenge [of stimulating innovation] the consequences for Europe could be disastrous. But politicians are ignoring it because it isn't immediately apparent."
US economist, Dr Irwin Stelzer, has claimed that fledgling small businesses still face a "nightmare" in the UK. Speaking at NESTA's flagship event, Dr Stelzer said that the regulatory and tax burdens faced by UK start-ups meant they were still at a considerable disadvantage to those in the US. Commenting on the need for a more entrepreneurial culture in the UK, Dr Stelzer added that the Chancellor, Gordon Brown, knew "the words but not the tune" when it came to creating such an environment.
Dr Stelzer also claimed that had the founders of Hewlett Packard developed their business in the UK as they initially did in the US - by working out of a garage - they would probably have been shut down by health and safety officials.
Also speaking at the event, former Finnish Prime Minister, Esko Aho - who chairs an expert group looking at how to boost innovation in the EU - admitted that there was still a "risk avoidance culture" in Europe that held back entrepreneurship and innovation.
He went on to compare the challenge of stimulating innovation to that of climate change:
"If we don't meet that challenge the consequences for Europe could be disastrous. But politicians are ignoring it because it isn't immediately apparent," he said. "We have a two year window of opportunity to meet and face up to this challenge."
Tessa Jowell, Secretary of State for Culture, Media and Sport also raised the emerging economies of Asia as key to the challenge facing the UK, but added that the UK could utilise its dynamic creative industries to exploit a gap in the Chinese economy:
"The focus on commercialisation and the Chinese education system's historic failure to encourage creativity means that there is an innovation gap. The potential is there for our creative industries to add value," she said. "China is eager to work with us, but only if we develop in a complementary manner, working in partnership not opposition."
She continued:
"One way to encourage a partnership approach and showcasing British skills in China could be to institute a Sino-British Creative Academy. An institution that draws on the existing respect for our higher education sector and links young British and Chinese designers and creative professionals, benefiting both."
Other speakers at NESTA's event, which took place today at the Business Design Centre, included:
Jonathan Kestenbaum, NESTA Chief Executive, who said:
"We are clear that innovation is the single most defining challenge facing the UK over the next two decades. Where once the UK economy used to be able to rely on optimising for efficiency, we now need to optimise for innovation. We require nothing less a galvanising mission around the innovative power of the UK."
Entrepreneur, Simon Woodroffe who said:
"Education is very important to giving children the passion and understanding about how the world works." The Yo! Sushi founder recalled how inspired he had been by a school visit to an Aston Martin factory to see the car driven by James Bond. On Entrepreneurial culture, Woodroffe claimed TV had a massive part to play in guiding children: "Love it or hate it, but Kids talk about Dragons' Den in school."
NESTA, the National Endowment for Science, Technology and the Arts, is launching its new five-year plan to transform the UK's capacity for innovation. It uses its unique national endowment of over £300m to provide early-stage funding, influence policy and develop a UK culture where innovation can flourish. This includes a new £50 million investment fund targeted at early-stage innovative ventures.
For further information, please contact Sarah Hayward on 020 7645 9583/07957 156 759 or James Marsh on 020 7645 9563/07990 973880.1. NESTA's event took place at 9.00am on 24th October at the Business Design Centre, Islington. Full details may be found on the NESTA website.
2. The event showcased fifty of the UK's most innovative young companies and individuals supported by NESTA as well as highlighting new activities.
3. Further comment from the above speakers may be available. The views expressed are not necessarily those of NESTA.
4. The event coincides with the launch of The Innovation Gap, a new NESTA report which calls for greater support of "hidden innovation". The report - endorsed by the CBI, the Work Foundation and The Young Foundation - analyses the innovation taking place in the UK and demonstrates that much innovation remains hidden to traditional indicators. The full report may be downloaded here.
5. Despite having huge creative talent, the UK is still not fulfilling its innovation potential because it is held back by a number of cultural and financial factors:
Britons are risk averse - Fear of failure as an obstacle to starting a business has risen in the UK between 2001 and 2005 from 30.1% to 34.2%. 68% of senior executives in the UK believe that entrepreneurial behaviour and entrepreneurs are not highly regarded in this country, compared with the global average of 41%. Only South Korea ranks lower. If the UK's total entrepreneurial rate was similar to that of the USA, there would be an additional 1.8 million people actively engaged in creating a new business or recently having started one.
Access to capital remains a major barrier to young firms - The average amount of venture capital per company in the United Kingdom ($1.19 million) is higher than in Japan, but still completely out of line in comparison with the United States ($8.1 million). In 2005, UK private equity activity increased to its highest ever levels. However, buyouts represented 70% of the total amount invested at $32.3 billion. Seed investments represented 0.4% by amount at only $186 million and 4% by number.
Business angels are helping to fill part of the equity gap but we are way behind the US - There are up to 350,000 business angels in America who invest around $30 billion a year in some 50,000 ventures, an average of $600,000 per investment. In the UK, optimistic estimates put the number of angels at 40,000.
Small firms are frightened of growth - 72% of UK businesses with over 250 employees are "innovation active", compared to just 57% of firms with only 10-250 staff. This is particularly significant as our economy is predominantly made up of small and medium enterprises. Overall proportion of innovation activity in the UK has risen 14% in four years, from 48% to 62%; however this still means that over one-third of UK enterprises have no innovation activity.