Let citizens promote innovation

A crowdfunding initiative proposed this week by the UK BioIndustry Association (BIA) could raise £300 million per annum to invest in commercialising research, whilst at the same time providing the public with an avenue for taking an active interest – and playing a practical role – in the growth and development of high tech start-ups.

Many innovative companies face an ongoing challenge of identifying where their next funding round will come from. These companies are often sold at the earliest opportunity, “rarely maximising the potential for development” and “denying investors the best return on their capital”, says Steven Bates, the recently appointed head of the BIA, the industry body representing the medical biotechnology sector in the UK.

Unleashing patriotic potential

The introduction of Citizens’ Innovation Funds (CIFs), which are a tax advantaged investment scheme, would “unleash the patriotic potential of the general public” by offering an opportunity to invest in innovative companies.

While there is a possibility of greater returns, such investments are also higher risk, and Bates told Science|Business this would be defrayed by, “using the power of knowledgeable fund managers who have been around the course a few times.” The funds would be run on similar lines to venture capital funds, and could co-invest with VCs and other private investors. However, CIFs will have a longer time horizon of at least ten years, allowing a CIF to stay invested in a company until it became self-sustaining.

French role model

The CIF concept proposed by the BIA is based on the Fonds Communs de Placements dans l’Innovation (FCPI), the French scheme that has raised over €6 billion since 1997. More than 1,000 companies have received money from the fund, and two recent analyses show there are benefits for innovative start-ups receiving FCPI backing, compared to similar companies that do not. These include; increased revenues; increased job creation and higher spending on staff; a greater propensity to export; enhanced access to credit; a greater likelihood of publishing patents; and greater probability of listing on a public market.

Successful French companies that have had backing from FCPI include Parrot, a manufacturer of wireless devices for mobile phones, Vistaprint, a provider of online marketing, Fovea, a specialist in treatments for eye diseases, and Carmat a medical devices company that is developing an artificial heart.

However, the FCPI does not stipulate that investments must go only to companies that are based in France, and start-ups from elsewhere in Europe that have had its backing include gate5, a Berlin-based mobile phone specialist, BioVex, a cancer vaccines company founded in the UK that moved its headquarters to the US before being acquired by the US biotech company Amgen, and Syntaxin Ltd, a spin-out from a UK government research laboratory.

A crowdfunding initiative proposed this week by the UK BioIndustry Association (BIA) could raise £300 million per annum to invest in commercialising research, whilst at the same time providing the public with an avenue for taking an active interest – and playing a practical role – in the growth and development of high tech start-ups.

Many innovative companies face an ongoing challenge of identifying where their next funding round will come from. These companies are often sold at the earliest opportunity, “rarely maximising the potential for development” and “denying investors the best return on their capital”, says Steven Bates, the recently appointed head of the BIA, the industry body representing the medical biotechnology sector in the UK.

Unleashing patriotic potential

The introduction of Citizens’ Innovation Funds (CIFs), which are a tax advantaged investment scheme, would “unleash the patriotic potential of the general public” by offering an opportunity to invest in innovative companies.

While there is a possibility of greater returns, such investments are also higher risk, and Bates told Science|Business this would be defrayed by, “using the power of knowledgeable fund managers who have been around the course a few times.” The funds would be run on similar lines to venture capital funds, and could co-invest with VCs and other private investors. However, CIFs will have a longer time horizon of at least ten years, allowing a CIF to stay invested in a company until it became self-sustaining.

French role model

The CIF concept proposed by the BIA is based on the Fonds Communs de Placements dans l’Innovation (FCPI), the French scheme that has raised over €6 billion since 1997. More than 1,000 companies have received money from the fund, and two recent analyses show there are benefits for innovative start-ups receiving FCPI backing, compared to similar companies that do not. These include; increased revenues; increased job creation and higher spending on staff; a greater propensity to export; enhanced access to credit; a greater likelihood of publishing patents; and greater probability of listing on a public market.

Successful French companies that have had backing from FCPI include Parrot, a manufacturer of wireless devices for mobile phones, Vistaprint, a provider of online marketing, Fovea, a specialist in treatments for eye diseases, and Carmat a medical devices company that is developing an artificial heart.

 However, the FCPI does not stipulate that investments must go only to companies that are based in France, and start-ups from elsewhere in Europe that have had its backing include gate5, a Berlin-based mobile phone specialist, BioVex, a cancer vaccines company founded in the UK that moved its headquarters to the US before being acquired by the US biotech company Amgen, and Syntaxin Ltd, a spin-out from a UK government research laboratory.

Untapped source of funds

CIFs would complement other government measures that offer tax breaks to draw in money to stimulate the development and growth of innovative start-ups, Bates claims. And there is no risk that funds would be channelled away from other tax-based SME funding schemes because CIFs will pull in money from a currently untapped source – the general public. The aim is to attract middle-income earners who have been hit by current rock-bottom interest rates which mean they are getting low returns from traditional savings and investment instruments.

The BIA’s report on the practicalities and advantages of setting up CIFs, published this week, was written at the request of the government, which asked the Association to draw up a detailed proposal. Bates said he now looks forward to discussing the plan with the government and the main political parties, and is hopeful the CIF scheme will make the cut for the next annual budget, in March 2013.

“Underwriting [CIFs] via a fixed tax incentive, which we estimate could be revenue-neutral in three years, would be effectively using  public funds to leverage additional private sector capital into the most productive sectors of the economy,” said Bates. “The establishment of such a scheme is cost-effective, practical and timely.”

CIFs would complement other government measures that offer tax breaks to draw in money to stimulate the development and growth of innovative start-ups, Bates claims. And there is no risk that funds would be channelled away from other tax-based SME funding schemes because CIFs will pull in money from a currently untapped source – the general public. The aim is to attract middle-income earners who have been hit by current rock-bottom interest rates which mean they are getting low returns from traditional savings and investment instruments.

The BIA’s report on the practicalities and advantages of setting up CIFs, published this week, was written at the request of the government, which asked the Association to draw up a detailed proposal. Bates said he now looks forward to discussing the plan with the government and the main political parties, and is hopeful the CIF scheme will make the cut for the next annual budget, in March 2013.

“Underwriting [CIFs] via a fixed tax incentive, which we estimate could be revenue-neutral in three years, would be effectively using  public funds to leverage additional private sector capital into the most productive sectors of the economy,” said Bates. “The establishment of such a scheme is cost-effective, practical and timely."

Report: Citizens’ Innovation Funds – Engaging the public with UK innovation