Archive for 2009

A few words by David Gill, Managing Director of St John's Innovation Centre Ltd:

• 

  Dec. 6, 2009 Lessons from Belfast

  At the risk of coming across as someone who spends too much time out of the office, let me summarise some issues arising out of the 11^th annual UK Business Incubation conference held in Belfast last week.

  First, I was impressed by the knowledge and enthusiasm of the Members of the Legislative Assembly and their officials about the importance of start-ups and the role incubators can play in fostering their growth. Northern Ireland may be a small economy taken on its own, and faced with any number of challenges, but a ‘can-do’ spirit emanated from policy makers and professional advisers alike.

  Secondly, the session at which I spoke was on funding for the incubator and its clients, and as at the Technopolicy conference in Stockholm it was reassuring to find that the other speakers and the interventions from the floor seemed to share the concerns we find here at St John’s Innovation Centre. Looking at funding for start-up and growth firms, no-one I spoke to believed that the UK/European venture capital model is anything other than broken – with the honourable exception of a few specialist firms such as MTI Ventures in Watford, who’ve stuck with the classic venture model and worked closely with academic institutions.

  So most incubatee firms have to rely on a combination of boot-strapping their own resources, grants and funds earned from consulting before persuading angels they have sufficient market traction. This might ensure the survival of the fittest in theory, but in practice I think it means that even really sound proposals with a good deal of promise take a lot longer to gain momentum than would be the case in North America.

  A long-standing controversy around Cambridge suggests that relatively few companies started here make it through to the stage where they are ‘built to last’ rather than ‘built to sell’, though there are one or two that break the mould in each generation, such as ARM and Autonomy. An absence of institutional funding must be an important part of the explanation.

  Thirdly, I wrote last week about the limited extent to which Britain supports incubation through government intervention compared with Sweden or Germany, and as expected this subject came up again. But I shan’t revisit that issue this time except to report that one speaker put a brace face on the ever-dwindling public resources in the UK by suggesting that the more incubators are forced to look to the private sector, the more they will be responsive to the current needs of their market – and they will suffer less from the tyranny of targets imposed by local councils when the incubator was built, often in very different economic circumstances. Start-up targets might have been OK in 2004 (say) but today we should be measuring survival rates instead.

  However, a fourth and final area of debate during the session was whether incubators should - as a matter of policy - seek to take equity stakes in companies they nurture. The argument runs broadly as follows: if an incubator had taken a token amount of equity in all its tenants (say in the form of options, to keep ownership issues simple) then after a dozen years it might well have built up a portfolio of 50 or 100 such options. If only one company goes on to a stock market listing, that sliver of equity might be worth a substantial six-figure sum, enough to keep the incubator funded to carry on providing services for the next generation of start-ups for several years.

  My own view, for what worth, is that such a model would only really work where the incubator and its tenants are part of a close-knit community, such as where the incubator is run by a university specifically for university start-ups. The equity options would feed into an evergreen fund and the wider public benefit would be relatively easy to see. Similar arguments apply with intensive ‘boot camp’ style incubators, such as Y-Combinator.

  But where a more ‘generalist’ incubator is concerned, taking an option is more problematic. For one thing, valuation will always be an issue where the company in question is already up and running and has had external funding from angels, say. The investors will generally prefer to inject more cash themselves to pay for services – from rent to advice – that might otherwise dilute ownership.

  The other issue is perceived independence. One definition of an entrepreneur is someone who commandeers the use of resources he does not own or control. An incubator manager does the same thing but one behalf of tenant companies, and on the whole people of whom favours are asked – investors, professional advisers, industry experts – are sympathetic to requests by incubator managers because they know the request is made in good faith and at arm’s length on behalf of early-stage firms who lack the incubator’s networks.

  If the incubator has an ownership interest in the firms on behalf of which it acts, how long will it take for such third party goodwill to evaporate?

  Furthermore, one of the skills that incubator directors have to exercise in the privacy of one-to-one interviews with clients is when to say ‘no’. Sometimes ‘no’ even extends to suggesting that the business will never fly and that the tenant should – for the sake of the founders, the employees and the investors – wind the firm down. It might be more difficult to do that if the incubator has a vested interest in the firm’s survival.

   So my thinking on incubators taking client equity is, for the moment, that it is not a good idea. But I’m biddable. As Groucho Marx said in a different context: ‘these are my principles; if you don’t like them…well, I have others.’

   

   

• Nov. 30, 2009 Incubation as a Public Good - the Swedish Model

  Last week, I was in Stockholm for two days speaking at a conference called Best Practices in Science-based Incubation, organised by the Technopolicy Network. My session was on “Public/Private Finance for Sustainable Incubation” and the debate was lively. Incubators around Europe and beyond are frequently set up with the benefit of public funding but are expected in a few years to become self-financing.

  Long story short, all of us on the panel were trying to conform to the orthodoxy that one way or another all incubators should find methods of weaning themselves off reliance on public subvention. Suggestions from the US included proposals to gain corporate sponsorship for academic incubators; the presentation from New Zealand demonstrated the extent to which sponsorship is already provided there, in the short term at least. But I was not alone in feeling that the orthodoxy of self-sustaining incubation is a chimera.

  The ice was broken by interventions from Sweden and Germany, both pointing out how naked the emperor of self-funding incubation really is.

  The Swedish representative told us that in his country the view has been taken that business incubation is in effect a public good, like education or research or defence. So the state recognises that an element of public funding is a long-term necessity providing benefits for society at large, not a cost of which to be embarrassed.

  The chairman of my panel, Heinz Fiedler, president of Science Park & Innovation Centres Expert Group (SPICE), was the founder of the first European incubator, in Berlin in 1983 – predating even St John’s Innovation Centre by about 4 years. He summed up the discussion by supporting the Swedish Model. We should stop talking about public funding for incubation services as a cost – it is a fee for a service from which the whole economy will benefit. This reminded me of angel investors who bridle when entrepreneurs talk of giving equity away: “You’re not giving it – you’re selling it!”

  Not for the first time in recent months I was struck by the extent to which mainland Europe and the Anglo-Saxon world seem like oil and water. Perhaps because in the 1970s we had both dire public services (remember the trains?) and high taxation, Britain in particular started an experiment in the 1980s of championing the private sector and living by market rules. Denis Healey famously referred to “sado-monetarism” as the hallmark of British economic policy then, but “sado-markets” might have been closer to the truth.

  As a diligent reader of the Economist magazine since I was in the 5^th form at school, I think I can recite the theoretical virtues of the market in my sleep. But when I experience the virtues of public transport in France or Germany - or Sweden- or listen to the unhinged objections to universal healthcare underwritten by government emanating from the loopy Right in the US (‘death panels’ will decide who should live, according to the ineffable Sarah Palin), my faith in government intervention to meet market weaknesses revives. Not all markets are self-correcting.

  Here at the St John’s Innovation Centre, we should acknowledge the contribution of government agencies such as EEDA and the Greater Cambridge Partnership over the years in paying for services that pull the Centre away from being simply managed workspace with a few additional services, and instead enable us to provide the advice, guidance, introductions and support that make for successful incubation.

  At the moment, thanks to funding from GCP we can advise 175 companies a year under the High-growth Starts programme. And through EEDA’s Understanding Finance for Business series of training workshops we are providing introductory sessions to around 500 companies a year. I doubt either scheme would exist if left entirely to the market. If only 10% of those companies we advise go on to improved performance, the impact on the regional economy will be significant.

  So much as I understand the theoretical case for market-based solutions as the earth around which we must all revolve, seeing the interventionist Swedish model in action reminded me of Galileo’s (alleged) famous phrase when he was forced to recant his belief that in fact the earth moves round the sun: “E pur si muove” – “And yet it moves”. External support is still necessary to make incubation work, and it is not a cost but an investment.

   

• Aug. 6, 2009 Cambridge Enterprise Conference

  23rd September 2009
  
  It’s only a month until the 10th Cambridge Enterprise Conference (CEC10) takes place at Churchill College. The theme this year is ‘navigating international waters’ and if you are an innovative SME with growth aspirations, I urge you to attend as building in an international dimension from the outset is one of the surest means of growing over the longer term.
  
  The CEC started as just an idea for airing issues about entrepreneurship, devised by Christopher Saunders (Choir of Angels) and Walter Herriot (St John’s Innovation Centre) in 1997. I became involved by serendipity as at the time I was working in the Marketing Department of HSBC and was in HSBC’s Cambridge office when Chris and Walter came in to pitch the idea.
  
  HSBC became a founder-sponsor and I gave a short talk at CEC 1 on the different ways that German and British banks deal with SMEs. The venue was the Fisher Room at St John’s College, which these days would be far too small for the number of attendees expected, though at the time the organisers were concerned that no-one would turn up.
  
  For the next three or four years, the date and the format varied somewhat. Sometimes the conference took place in April and sometimes in September (hence 10 conferences over 12 years). It ranged from one day to two and a half, with different ‘tracks’ in different lecture theatres, before settling down to its current format about four years ago. A number of names to conjure with in the innovation space have been speakers, from Amar Bhide of McKinsey and Columbia University to Mike Lynch of Autonomy and Guy Kawasaki of Garage Technology Ventures.
  
  This year the line-up is equally impressive. It would be invidious of me to single out any speaker in particular, so check out http://www.cambridgeenterpriseconference.co.uk/
  
  After an opening session on ‘the export imperative’, tracks will cover doing business in North America, in Europe and in Asia. The conference will conclude with a session on open innovation, and as is now customary, at lunch-time there will be elevator pitches from half-a-dozen promising young tech firms.
  
  The Cambridge Enterprise Conference is sponsored by Peters Elworthy & Moore as well as by the St John’s Innovation Centre. It is supported by Business Link, the Greater Cambridge Partnership and N W Brown Group Limited.
  
  Thanks to this support, we can allow entrepreneurs running early-stage, innovative firms access to the Conference on preferential rates.
  
  If you’re interested in attending, come and have a word with Peter Hornby or me in the office.
  
  Until next week
  
  David
  

• Aug. 3, 2009 Welcome to the new website

  Welcome to the newly-revamped website of the St John’s Innovation Centre! We hope you find it useful and informative.

  In addition to enhanced background information on the Centre itself, the Cambridge cluster and some recent or current tenants, over the next few weeks we’ll be rolling out services such as the ability to book rooms online, a calendar of events, a discussion section for live topics and other features to supplement the sense of onsite community with virtual tools to make communication easier.
  
  The SJIC community is fairly extensive, and as a result I suspect that most of us don’t talk to our neighbours (in the broad sense) as much as we’d like. Some 60 companies actually on site and 300 people working in the building are supplemented by 270 Star Tenants – companies who use SJIC as their address but don’t (yet) have a physical office here. With a wide range of organisations – from technology breakfast clubs to faith groups – using our conference rooms for regular events, the traffic through the building in any given month is quite extensive.
  
  I’m acutely aware that the recession has made most of us in the building keep our heads down this year, which is understandable. But many of the benefits of being in an incubator like SJIC come from discussions – formal and informal – with fellow tenants, and it’s those conversations we’re looking to facilitate during the autumn and beyond.
  
  In addition to new discussions facilities on the website, we’re re-launching the regular Friday events that many of you will remember from Enterprise Link days. Starting in mid-September, every other Friday the Innovation Centre will provide a sandwich lunch and an (usually) external speaker to talk for 20 minutes on a current, relevant topic of particular interest to innovative firms. Proposals being considered include legal issues in raising funds, recent changes in the grants regime, team building, open venturing and strategic marketing.
  
  We’re also looking to encourage tenants who’ve recently been successful in raising finance or undertaking a major corporate transaction to share their experience. If you have stories to volunteer, do let me know. The Friday lunchtime format is likely to evolve according to demand, and we welcome your feedback. If it proves popular, we’d look to have more frequent events.
  
  Now a short word about this blog. Having spent 2004-05 in California, just as social networking and personal blogs were taking off in a big way, I used to be a strong supporter of new media. But such has been the explosion of material in the past two or three years that it’s difficult not to feel that ‘less is more’. Personally I don’t even find time to listen to the weekly podcasts on entrepreneurship and finance I download from the BBC or the Cambridge or Stanford websites. And I’m a little suspicious of people who do: when are they actually getting work done?
  
  So this blog is likely to appear weekly, but if we on the SJIC home team don’t have anything to say, we won’t issue a blog just for the sake of it. Subject matter will be very similar to the proposed Friday midday events: current developments in areas of interest to innovation SMEs, from access to funding to changes in patent regulation or industry trends. In addition, developments at SJIC itself will also be covered.
  
  And as Polonius put it, brevity is the soul of wit, even though I still doubt that anything meaningful can be said in 140 characters or fewer, unless author and audience already share a dense common background. But I’m even prepared to give that a go.
  
  Until next time
  
  David