Finance and Innovation – Essential Enablers to Drive Growth

Thu, July 23rd, 2020

A new independent report has been published today, outlining the steps needed...

A new independent report, Finance and Innovation – Essential Enablers for Future Business Growth, has been published today (23 July). It outlines the steps needed to deliver more investment ready businesses, and a stronger finance pipeline for every stage of business growth across the North West. The report was commissioned by the North West Business Leadership Team, and supported by Pro Manchester, the Liverpool Chamber of Commerce, Innovate UK and the City Region Mayors of Liverpool and Greater Manchester.

Report author Lee Hopley began her research prior to the onset of Covid-19, work that has been informed by interviews with both businesses and investors from across the region and beyond. The recommendations focus upon the support that is required for a more dynamic and resilient business sector that can adapt to the ‘new normal’ while embracing technology solutions and innovation. Increased angel investment and early stage risk capital is also crucial.

Task Group Chair, Richard Gregory – Senior Advisor, Virgin Money UK PLC launched the report:

‘Our entrepreneurs and innovative businesses are crucial for our recovery. They are the future wealth creators of our economy, never has it been more urgent to understand how best to support their successful development. Key to this is the need to ensure that they have access to an adequate supply of finance. Simply increasing the pool of available capital alone will not be sufficient for the region’s future growth needs. We need to better equip innovative and scaling businesses with the skills, knowledge and networks to access the right finance at the right time.’

While many of the issues identified in the report are common to other UK regions, the report identifies the significant opportunities for devolved and national bodies to work together to drive change, with opportunities for local actions to significantly improve the financing landscape for innovative businesses. Some will require partnership across the region and, at least in the immediate aftermath of this recession, engagement at a national level to effectively support the future engines of growth across the North West.

Liverpool City Region Mayor Steve Rotheram:

“Before the crisis struck, the Liverpool City Region had the fastest economic growth in England at 3.5% a year and well above average productivity growth. Our innovative growth businesses were central to this. To keep improving on our performance it is clear that these businesses will require varied sources of funding and high quality advice to help them access it. This report is a timely and useful contribution to the debate on how we develop a strong finance and support landscape for businesses as part of building back better.”

Greater Manchester City Region Mayor Andy Burnham:

“We know how important it is that Greater Manchester’s vibrant and innovative industries are able not only to recover but accelerate to meet the new challenges posed by the current climate. Throughout the crisis we’ve listened to the voices and experiences of business leaders, working to ensure local businesses can access the support and information they need.”

“This work from the North West Business Leadership Team shows the vital role which innovation finance must play. From digital connectivity and decarbonising infrastructure, to manufacturing supply chains and skills training, our response to the pandemic will shape the growth and resilience of our region for years to come. We have an opportunity to build back in a way that’s better, fairer, and more prosperous for everyone in the North West, and we cannot afford to miss it.”

Neil Ashbridge, Chair of the Liverpool Chamber of Commerce

“This report commissioned by the NWBLT is useful and timely given the recent economic shock caused by the COVID-19 pandemic. As economic activity recovers it will be vital that SMEs can access funding to rebuild sales and to invest in new processes, products and services. The report also highlights anomalies in the provision of funding to SMEs, not only across the UK, but within the North West, and it is important these are addressed. It provides decision makers in the public and private sectors with a helpful roadmap when considering how to support SMEs access funding and importantly the most appropriate funding for their business. The Liverpool Chamber was delighted to contribute to the report and stands ready to assist in taking recommendations forward for the benefit of members and the wider North West business community.”

Sam Booth, Chief Executive of Pro Manchester

“Pro-manchester were delighted to be invited to support the NWBLT with this fundamental piece of research and never could its release have been more timely. Amid these most unprecedented and challenging times it is now more important than ever to safeguard and provide necessary support to the development of our future businesses and economy. What this report highlights is that whilst the finance may well be available the pathway to access is not as clear. Support mechanisms, networks and education play a key role in getting businesses on the right path to securing the right finance at the right time.”

Rick Holland, Regional Manager of Innovate UK, North West England

“Innovation requires ideas, talent and usually finance. These are inter-dependent, and I am pleased to have supported this study throughout to understand how we can all improve the financial landscape for innovators in the North West.”

Summary of findings

Finance alone will not drive the success of innovative entrepreneurs in the region. Businesses need to be better equipped with information and management skills to access the finance available and secure the confidence of investors. Outside of the dominant finance sector in London and the South East of England the pool of investors is always going to be more limited, which means firms located in regions such as the North West will need to work hard to present their business and its potential to financers.

With a lower density of innovative businesses and finance providers in the region, compared with London, the networks than can connect the two become more important. The research finds that these ecosystems of sector clusters, support organisations and funders are fragmented across the region. Pockets of good practice, notably in Manchester, are helping to make more efficient and effective connections between entrepreneurs and investors. But many would-be finance seekers continue to struggle to navigate the available support and have been frustrated by too many wrong doors. A clearer articulation of sectoral priorities at the regional and sub-regional level could also help to provide a rallying point for the networks to emerge.

Recommendations

Securing the business base

Collaborative engagement with at risk sectors: LEPs, industry bodies and higher education institutions should work collaboratively with these at risk sectors to secure on-going innovation grant and loan provision to enable them to maintain their position in global supply chains.

Business/investor engagement on new normal: Engage with the networks and funds in the region to understand how future financing decisions may have been influenced by the recession. Early dialogue to understand shifts, should be private sector led.

Recovery advice & support: LEPs need a clear strategy to deliver, sign-post or partner with public and private sector support bodies to ensure the recovery support is well matched with business that came into the crisis with a strong innovation focus.

Capacity building

Digital delivery of accelerator programmes: Pilot digital delivery of start-up incubator and accelerator programmes.
Investment readiness support: Private sector to lead on the development of an investment readiness support product tailored to local/regional circumstances. There must also be a clear distinction between improving management capability more generally across SMEs and the investment readiness needs of highly innovative firms.
Regional sector promotion strategy: In line with the evolution of local industrial strategies, a more clearly articulated sector proposition would strengthen the hand of LEPs and other Government departments and private sector bodies in promoting business capabilities to investors from across the UK.

Finance supply
Focus on finance supply: angel co-investment, seed capital fund: Cross-region working to reboot and expand the Regional Angels Programmes to increase the amount of early stage equity capital and raise the profile of angel investment activity.

Pivot from recovery advice to referrals and ecosystem build: Build on any new support arrangements implemented through the recovery to build a more structured approach to a referrals pipeline of innovative business propositions to finance providers.

Investment and digital: Scale up digital adoption to sustain investment, particularly in the dominant manufacturing sector so the region captures benefits from the net zero transition and supply chain reconfiguration that is likely to be a consequence of the current crisis.

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