Business Weekly - Cambridge, UK

Prof Andy Hopper and Walter Herriot both applauded the quality and abundance of innovation in the East of England but warned that without the appropriate funding, management and strategy, US firms will continue to lap up the fruits of UK labour and invention.

St John’s Innovation Centre MD Walter Herriot said: “On a macro level, the Cambridge hi-tech industry is very successful, a £7.6bn per annum industry with over 3,500 companies. But the problem is that companies are selling out too early.

“We could lose too much, like the CAD (Computer Aided Design) cluster in the 1980s.

“Almost all the CAD companies were acquired by US firms and within five years they had moved away. As a consequence, we have to make sure that there are enough high quality start- ups.”

SJIC itself has been a haven for many small businesses, including some of the region’s more successful hi-tech firms like Autonomy and Zeus.

Prof Hopper, one of the most respected entrepreneurs in the UK and now director of Cambridge University’s world-leading Computer Laboratory, believes there is a need for more appropriate incubation either through organisations like SJIC or within larger companies.

He said: “Flexibility is key. There is a need for intermediate organisations like SJIC, which is brilliant. It is trusted and in its context produces excellent results.

“All you need to do is look at some of the most successful technology companies to come out of the region. ARM came from Acorn, where it was nourished, though it took a while. It also spun-out with contracts from the parent company to back it up.

“Virata – now Conexant – at AT&T had been going for a number of years before it spun-out.

“CSR recently floated on the London Stock Exchange and is now worth over £400m. It had the same sort of back up from Cambridge Consultants. TTP has done similar work.”

Vital to the success of all of these has been the funding. Prof Hopper said: “These were all such fertile grounds because they were all fundable when they spun-out. Intermediary firms help them reach fundability because most things straight out of the university are unfundable.

“The role of a university is the teaching of people; everything else is peripheral. Academic funding comes in the form of peer reviewed grants, which are judged on academic criteria.

“The principal measure of academic excellence is publication, but is that a good guide to wealth creation? No.

“There exists a tendency to trade IPR for a high value rather than a high volume. The university does produce good stuff and it should go to volume as fast and cheap as possible. We do not always know what will succeed.”

Herriot added: “We need the quality of management to cope with unpredictable circumstances, which our education system is too narrow to produce at the necessary numbers.

“In the US, people who are starting businesses are better rounded, having done business courses. Here we do not have the management experience, have not been through the mill and need the training.”

Integral to having the right management and strategy is getting the right funding.

Herriot said: “The real problem is funding. At the moment there are no specific seed funds with money to invest (yes business angels, but not seed.) Mezzanine funding is sorely needed, providing loans at high coupons with a good equity kicker.

“The high coupon prevents an early sale, covering companies that are trying to make it in niche markets. Enabling repayments makes companies more sustainable with no need for a quick exit.”

Neither is Government support as strong as it could be according to Herriot. He said: “EEDA is the poorest of all the RDAs in the UK and a SMART award (now DTI Grants for Research and Development) is harder to obtain than it used to be, which is concerning with the Government’s commitment to supporting a knowledge based economy.

“There is a need for early stage funding for future stars otherwise we’ll find we’ve sold off the family silver.”