In July 2021, the UK government published their UK Innovation Strategy, setting out the vision to make the UK a global hub for innovation by 2035 [5]. This commitment was reaffirmed in March 2022 when the government announced plans for the largest ever R&D budget, aiding delivery of the innovation strategy and driving forward ambitions to cement the UK as a science superpower.
For reference, this budget details the increase in R&D spending, set to reach £20 billion per annum by 2024-2025, and confirms the government’s commitment for total R&D spending to reach 2.4% of GDP by 2027 [4].
Alongside this, Innovate UK is considered by the government as critical to delivering their ambitions [5]. They provide an ecosystem to support business through finding the right partners, expertise and connecting with investors, but crucially Innovate UK support directly with financial loans and grants [6].
The decision-making process in how this financial support is offered is done through competitions. Businesses that are looking for funding, apply to these competitions during their specified application window, before Innovate UK decide on who to award the funding to. The competitions can span a vast array of fields and areas of expertise. With many being very focused on certain areas, alongside more general less targeted innovation grants. Eligibility is dependent on the specific competitions, but many are open to single applicants as well as collaborations, and it is also likely that more than one applicant can receive funding from a single competition.
For some perspective, Innovate UK funding for 2020 to 2021 amounted to £885 million [7]. A considerable amount and the Government claim within their innovation strategy that ‘the programmes they [Innovate UK] deliver create £7 of economic benefit for every £1 of public investment’ [5]. A seven times/7x return is a big claim for any sort of investor. It would be great to see some form of calculation to justify this claimed benefit from Innovate UK.
Nevertheless, while this economic benefit is not specifically a return seen to the companies that they invest in, the logical hypothesis to take is that these companies will see some form of economic benefit in themselves.
, from it we can see a total of 49,527 successful applications to 26,242 projects, from 17,698 separate entities. and have proceeded to run these through a Companies House search.
The resulting data is referred to as the UK Registered Data Set . It relates to 15,558 registered entities. For these entities, we can see 40,264 successful applications relating to 23,847 projects.
It is understood that a negligible number of entities have been removed from this data set as a result of their respective company registration numbers not being recognised when the search was carried out.
Delving deeper into these recognised entities we are able to see the top five regions and industries by the number of successful applications, as seen in the tables below.
shows many successful applications are not offered an award. Not all Innovate UK competitions result in funding and even without an award there will likely be an impact on innovation here in the UK. We want to narrow down the focus to see the impact Innovate UK funding is having.
Taking our UK Registered Data Set and focusing on successful applications that have funding values attached. We end up with our All Funding Data Set , this data set relates to £9,813,514,702.47 of funding, that has gone to 14,383 entities from 35,578 successful applications.
Once again, we are able to see the top five regions and industries but this time by the total value of funding they have received, as seen in the tables below.
, we obtained the Commercial Data Set . This data set relates to £5,871,745,836.03 worth of funding, from 29,336 successful applications, associated to 14,043 entities.
Cycling through the same process as before we can see the top five regions and industries by the total value of funding committed, as seen in the tables below.
While all of the above clearly displays Innovate UK is deploying vast amounts of funding, the real question is are they doing so effectively? Do Innovate UK represent value for money for the UK taxpayer?
they have offered £9,813,541,702.47 of funding to 14,383 recognised entities. Attention, therefore, turns to how effectively are Innovate UK deploying said capital to achieve a return on their investment.
For Innovate UK, they claim that ‘Innovation is the lifeblood of business’ and ‘Innovation delivers economic growth, new jobs and better living standards’ as well as ‘Businesses that invest in innovation have higher growth, higher productivity and export more’ [8]. and subsequently obtained the publicly available accounts relating to the period 01/01/2011 to 31/12/2020, for all of these entities.
Inherently we are only assessing Innovate UK funding activity that took place during this period and for companies that have a sufficient period pre and post funding (two years pre and post funding), so that we are able to assess the impact to the aforementioned variables.
This left us with a final Impact Data Set of 3,499 recognised entities, which relates to £470,494,634.52 worth of funding.
The summary figures can be found in the table below.
The table shows that on average Innovate UK has been unsuccessful at improving the trajectory of companies they have invested in, in three out of four of the key measures of company impact.
Average growth in Employee Count per year has fallen from 21% pre funding to just 4% post funding. This is suggesting that Innovate UK is falling short of the claim to bring jobs, growth, and prosperity to all parts of the UK [5].
Similarly, average growth in Turnover per year has fallen by a less severe amount from 23% pre funding to 16% post funding and companies with increasing Net Worth has fallen to a similar magnitude from 63% pre funding to 56% post funding. The only variable to show any sign of improvement is taxation, as companies with increasing tax liability has grown from 47% pre funding to 49% post funding.
In fact, 59.5% of companies in this data set recorded a decrease in at least one of the four key measures after funding.
There is, however, still the argument that Innovate UK has had a positive impact here. Average growth in employee count and turnover is positive, not negative, and greater than 50% of the companies have an increasing net worth. Evidently there is growth, just not an improved trajectory. There is also some reconciliation that just shy of 50% of the companies have an increasing tax liability. Tax payments go to the Government, and they fund Innovate UK, so there may be some payback being achieved.
There is also the argument that without the Innovate UK investment these figures could have been worse. However, the purpose of Innovate UK is not to be an investor of last resort, they are not supposed to be stopping companies from declining, they are supposed to be supporting innovation, something which should have a positive impact on the companies carrying it out. An improvement in trajectory of the key variables is the least that should be expected. we can get a more accurate representation of Innovate UK’s risk management. These are all companies that have committed funding from Innovate UK, similar to receiving investment from a venture capital firm.
There are 2,270 of these companies that have dissolved after Innovate UK funding was committed, now referred to as the Dissolved Companies Data Set , that is 16.2% of the recognised commercial business entities that Innovate UK has invested or was investing in. Fortunately, they only relate to £293,296,517.19 worth of funding.
Additionally, at the time of analysis 321 companies were insolvent, that relates to a further £123,288,404.89 worth of funding.
On top of this a further 2,309 companies or 16.4% of the recognised commercial business entities are identified as being in the weakest 20% in their size category and display risk factors that might include a deteriorating financial position, sub-optimal gearing/liquidity, and/or the presence of more recent, or significant legal notices. Thus, the risk associated with these companies is elevated and means that £925,875,094.87 worth of Innovate UK funding for these companies is at risk.
Combining these insolvent and high-risk companies means that we have £1.05 billion invested in 2630 companies identified as being at high risk of dissolution. This is 18% of Innovate UK’s funding to commercial entities.Nevertheless, Innovate UK claim that they do support UK innovation, and ultimately that means that they must have some positive effect on the companies in which they invest in.
, we can begin to highlight where some of this positive impact is being felt most.
Below are four graphs, all showing the top five regions by the share of companies in that region that have experienced a positive impact from Innovate UK investment. Split out by their respective key measure of company impact.
by region by region, we can replicate our analysis to highlight which industries are feeling the most positive impact. This will enable us to better understand what is required for Innovate UK funding to be successful or have a positive impact.
As such, below are the four tables, showing the top five industries by the share of companies in that industry that have experienced a positive impact from Innovate UK investment. Split out by their key measure of company impact.
by industry by industryIf we turn our attention directly to companies receiving Innovate UK funding we can attempt to highlight any trends among them, in terms of the companies experiencing the largest positive impacts by key measures of company impact.
Important to mention here that only SMEs will be focused on, as typically Innovate UK funding is much more significant to these entities than to larger ones. This enables us to more accurately identify the impact of Innovate UK funding and removes the spurious results that would be obtained when looking at larger companies. Which may exhibit an impact, but this can be explained by the large movements in the key measures of company impact that these entities more generally observe.
for this top five is 65.3%, whereas the average for all SMEs is 75.8%. However, the average current over funding for these companies is £66,546.92, compared to £13,640.08 for all SMEs. for this top five is below the average for all SMEs with 72.6% compared to 75.8%, and average current over funding is significantly lower at £1,295.72, compared to £13,640.08 for all SMEs. for this top five is the lowest, standing at 55.6%, significantly below the average for all SMEs. But again average current over funding is higher than the SME average at £44,875.91 compared to £13,640.08
is significantly above the SME average, with 93% for this top five. Additionally, average current over funding is below the SME average of £13,640.08, with only £3,000.55 in average current over funding.While the above suggests that Innovate UK funding does have an impact on the key measures of company impact of entities that they invest in, it is not abundantly clear through what mechanism. There is an argument that both region and industry play a part in the benefit a company will see from Innovate UK funding, but the differences in funding likely plays the biggest role. From the above, there are conflicting arguments as to whether over-funding or cost coverage is more beneficial.
Nevertheless, while there is the case to make that more funding is better, much of Innovate UK funding seemingly goes to waste. As a significant number of their investments prove to be into entities that are arguably too risky as we explore below.
that Innovate UK has invested in. We mentioned before that 2,270 of these make up our Dissolved Companies Data Set , a further 321 were insolvent at the time of analysis, and 2,309 are considered to have elevated risk attached to them. And while it is appreciated that some risk is required, as with the case for any investment, it is important to see any trends in where this investment is going wrong. In other words, instances where investment has proved to be too risky.
We are forced to focus on the companies within the Dissolved Companies Data Set , as this is where we can categorically say that Innovate UK funding is no longer attached to a successful applicant.
Below are the worst five regions for dissolution both by number of companies and by value of funding.
. However, we are left with a disparity of value. Professional, Scientific & Technical takes top spot with 26.45% of all dissolved funding with only 22.9% of total funding going to this industry with respect to the Commercial Data Set .
If we look at the companies in terms of size, it is clear that the vast majority of the entities are SMEs, and only a very small amount can be classified as large companies, with 2,251 and 19 companies respectively. Indicating that these are smaller more risky investments and suggesting that they are more likely to be moon shots.
When we also consider this in terms of average funding per company, we can see that the Dissolved Company Data Set received on average £129,205.51 compared to all commercial entities with £418,126.17 in average funding.
Looking deeper into this, we can see that the average cost coverage among dissolved entities is 70.1% compared to 68.68% for all commercial entities. As well as the average current over funding among dissolved entities £19,720.92 being significantly below the full commercial entities average with £88,908.77.
Suggesting that Innovate UK recognised the risk associated with these now dissolved companies, providing them with smaller amounts of funding, although guaranteeing a slightly higher percentage of this funding, but were less likely to over fund applications.
This all reinforces the argument that these now dissolved entities were more likely to be higher risk moon shots companies and as such Innovate UK took appropriate measures to limit the risk. It is unclear if these technologies won on the basis of a high risk moon shot but it begs the question on is there a better way to fund these ideas and is the Advanced Research & Invention Agency the answer.An area that should be explored for improvement would be the concentration of large amounts funding to a select small number of companies. Case and point lies with the example of Rolls-Royce PLC which claims 7% of all funding or 11.73% of all funding to commercial business entities.
To further highlight this area of concern, one only has to look at the other top funded commercial entities: Airbus Operations Limited, GKN Aerospace Services Limited, Jaguar Land Rover Limited, and Airbus UK Limited with 2.76%, 1.94%, 1.28%, and 0.83% of all funding to commercial business entities. Meaning that these top five commercial entities claim 18.54% of all funding to commercial business entities.
This potential favouritism and inherent preference towards large businesses is only exaggerated further when considering that 32.39% of all funding to commercial entities is going to these large businesses, a disproportionate figure when taking into account they make up just 5.63% of companies.
While the argument can be appreciated that these entities are some of the best in the country and will undoubtedly carry out world leading innovation, it is hard to see how this much concentration of investment fits with being ‘the UK’s national innovation agency’ [2] and far from an inclusive innovation ecosystem that Innovate UK promote as part of their raison d’être.
It is fully understood that in terms of funding value, it is not a case that every company, region or industry should receive the same amount, this simply would not work. That and different projects demand different investments. But this level of funding going towards so few entities surely does not embrace all the potential innovation that the UK has to offer.
where the project had the status Closed or Fully realised. The total over funding value was £206,570,903 compared to a total award offered value of £3,206,573,843. That is 6.44% of the total award offered remaining unpaid.
However, in terms of the number of applications, there are 12,447 applications that remain in an over funding position at their close compared to a total of 21,882 applications. This means that 56.88% of closed applications remain overfunded.
The Innovate UK model will always carry an overspend, it is good governance that the money isn’t all paid upfront. It is sometimes unclear in the published headlines from Innovate UK how much is awarded and how much is actually paid out. and current over/under funding , which provide some explanation to the impacts seen.
Objectively, in terms of areas of improvement, there are a considerable number of companies that Innovate UK has invested in that have dissolved, this is the primary concern. With respect to this, there are certain regions and industries that contribute to this, but it should also be said that risk management can be inferred as being deployed primarily through smaller amounts of funding into these moon shots.
This should however not dissuade concern from the considerable amount of investment that is going into a small number of entities, and arguably the systemic overfunding that is taking place.
Finally, Innovate UK need to provide much better data and make their progress clear and transparent. When considering if they are a good investor or not, it should be very clear what their scorecard is.
At the end of the day, ‘Innovation is the lifeblood of business’ [8] and perhaps Innovate UK should turn to it to reimagine their operations because currently, it is hard to see where the ‘£7 of economic benefit for every £1 of public investment’ [5] is coming from.
It should also be considered that given that Innovate UK is publicly funded that they should provide greater detail as to how their investments are performing https://www.ukri.org/publications/innovate-uk-funded-projects-since-2004/
Downloaded Innovate UK data set on 04/01/2022.
Externally sourced data from Red Flag Alert downloaded on 11/04/2022.
Data set definitions
1. Innovate UK Data Set
Innovate UK sourced data, pertaining to entities that have been involved in one or more projects recorded by Innovate UK between 2004 and date of data pull (04/01/2022).
2. UK Registered Data Set
From the Innovate UK Data Set, remaining entities with a recognised company registration number after a companies house search has been carried out.
3. All Funding Data Set
From the UK Registered Data Set, entities that have at least one application with a funding value attached.
4. Commercial Data Set
From the All Funding Data Set, remaining entities after the removal of ‘non-commercial’ entities based on the Innovate UK categories: Academic, Catapults, Charity, Public Sector Organisations, Public Sector Research Establishments, Research and Technology Organisations.
4b. Dissolved Companies Data Set
From the Commercial Data Set, all entities that have a health status of Dissolved as provided by Red Flag Alert, through monitoring of company statuses on companies house.
5. Impact Data Set
From the Commercial Data Set, all companies that have financial accounts available for the period 01/01/2011to 31/12/2020 and a sufficient period pre and post funding (two years pre and post, not including the year in which funding/s was received), to assess at least one key measure of company impact (Employee Count, Turnover, Net Worth, Taxation).
Funding Cost Coverage
Is the percentage given by dividing the [Innovate UK] award offered by the [Estimated] total costs, as provided by Innovate UK for each application. This figure exists owing to the fact that costs for many Innovate UK funded projects are unlikely to be covered in full.
Current Over/Under Funding
Is the difference between the [Innovate UK] award offered and the [recorded] total actual spend to date, as provided by Innovate UK for each application.
Important to highlight ‘to date’ relates to the date of data pull, 04/01/2022. This figure exists owing to the fact that Innovate UK offer awards at the very beginning of projects, whereas costs accumulate over the course of the projects.
[1] https://www.oxfordlearnersdictionaries.com/definition/english/innovation
[2] https://www.ukri.org/councils/innovate-uk/
[3] https://www.ukri.org/about-us/innovate-uk/who-we-are/
[4] https://www.gov.uk/government/news/government-announces-plans-for-largest-ever-rd-budget
[5] https://www.gov.uk/government/publications/uk-innovation-strategy-leading-the-future-by-creating-it
[6] https://www.ukri.org/councils/innovate-uk/our-support-for-business-innovation/
[7] https://www.ukri.org/what-we-offer/what-we-have-funded/innovate-uk/
[8] https://www.ukri.org/about-us/innovate-uk/our-plan-for-action/
With a First-Class Bachelor of Science (BSc) in Economics and Finance, Adam’s role with GovGrant is to offer insight to the venture capital and private equity community. He brings fresh perspective, through the lens of IP, to identify value, risk and opportunity that is unlikely to have been considered by others.
Current Over/Under Funding
Is the difference between the [Innovate UK] award offered and the [recorded] total actual spend to date, as provided by Innovate UK for each application.
Important to highlight ‘to date’ relates to the date of data pull, 04/01/2022. This figure exists owing to the fact that Innovate UK offer awards at the very beginning of projects, whereas costs accumulate over the course of the projects.
Funding Cost Coverage
Is the percentage given by dividing the [Innovate UK] award offered by the [Estimated] total costs, as provided by Innovate UK for each application. This figure exists owing to the fact that costs for many Innovate UK funded projects are unlikely to be covered in full.
Impact Data Set
From the Commercial Data Set, all companies that have financial accounts available for the period 01/01/2011to 31/12/2020 and a sufficient period pre and post funding (two years pre and post, not including the year in which funding/s was received), to assess at least one key measure of company impact (Employee Count, Turnover, Net Worth, Taxation).
Dissolved Companies Data Set
From the Commercial Data Set, all entities that have a health status of Dissolved as provided by Red Flag Alert, through monitoring of company statuses on companies house.
Commercial Data Set
From the All Funding Data Set, remaining entities after the removal of ‘non-commercial’ entities based on the Innovate UK categories: Academic, Catapults, Charity, Public Sector Organisations, Public Sector Research Establishments, Research and Technology Organisations.
UK Registered Data Set
From the Innovate UK Data Set, remaining entities with a recognised company registration number after a companies house search has been carried out.
Innovate UK Data Set
Innovate UK sourced data, pertaining to entities that have been involved in one or more projects recorded by Innovate UK between 2004 and date of data pull (04/01/2022).
All Funding Data Set
From the UK Registered Data Set, entities that have at least one application with a funding value attached.
