Public-Private funding schemes or blended schemes combining private funding and grants have the potential to change the grants-funding market space in the UK (and Europe).
At Winnovart, we believe this is the most interesting thing happening in this marketspace for many years in Europe, promising to reshape its future. Therefore we have initiated a series of independent surveys across relevant stakeholder groups of the ecosystem emerging around the blended funding schemes. Our preliminary research indicates a positive initial experience of private investors with the pilot schemes on the UK market.
As we extend this initiative, we are inviting selected stakeholders to express their views about this new type of funding mechanism, their direct experiences with blended funding schemes, as well as expected challenges.
Introducing Paul Dowling (Mindstream AI, KQ Labs, Adrenaline Capital Partners)
The current Covid 19 crisis has had a profound impact on the start-up world. The need for businesses to digitise has accelerated many trends that were already evident, such as tele-medicine, distance learning and e-commerce. At the same time venture capital is focusing on supporting their portfolio companies and there is therefore a shortage of other forms of capital for start-up development. In the UK the government has created the Future Fund but this will only address start-ups that have already received funding and does not attract the tax breaks that angels require to invest and will therefore be mainly be attractive for venture capital portfolio companies.
However, the UK Government has allocated a further £750m for distribution as grants through Innovate UK. This funding will be mainly available to deeptech start-ups and is a welcome development that will support many worthwhile ventures. The challenge will be to deploy capital quickly enough to maintain momentum in the market and stop start-ups going under. We believe that Innovate UK supported accelerator programmes represent a solution to this. These programmes can either involve private participation or not, depending on circumstances.
“Mindstream AI designed and delivered KQ Labs, a data-driven health start-up accelerator, run out of The Francis Crick Institute in London. The first cohort in 2018 was unique in that it was funded by Innovate UK. This model is highly attractive because it deploys Innovate UK capital directly into the start-ups in the form of convertible notes. The process is highly efficient in that it outsources the selection process to the accelerator and therefore cuts through some of the bureaucracy involved in the Innovate UK processes. KQ Labs involves experienced Venture Capitalists in the selection process to identify 10 start-ups per cohort every year.
We are currently, exploring blended funding schemes for several new accelerator programmes, one focused on Global Recovery, the other on Gene and Cell, Advanced Therapeutics. In both cases, we strongly favour the accelerator model, where the selection process is effectively outsourced by Innovate UK to the accelerator management company with support from the private investor partner.
This model is attractive to the private investor because it accesses UK Government Funding on benign terms and minimises risk of the investment capital. It is attractive to the SME because they also get investment on benign terms plus a whole range of support services delivered through a 16-week programme. This includes support with market access, regulation, protection of IP, scaling, additional funding etc.”
Mindstream AI is a company that operates in the intersection between entrepreneurship, artificial intelligence and health. The company primarily operates programmes to support companies in these high growth categories. These programmes include accelerator programmes, ecosystem strategies, innovation advisory, hackathons and data science training. We strongly believe in diversity of founders, the democratisation of entrepreneurship and supporting businesses that strive to make societal impact, particularly in the health sector but also addressing climate change and other pressing challenges facing humanity.
“At Winnovart, it is part of our mission to bridge the gap between stakeholders of the grants-funding marketspace across Europe. The blended funding schemes combining grants from government funding agencies with funding from private investors (especially Venture Capital) brings a very interesting dimension and represent a natural development. Private funding for scale-up has always been the medium- to long term goal for companies receiving grants from various sources. With the blended funding schemes this will be accelerated. Funding and growth support acceleration for companies, less risk for private investors, less risk for government agencies. It looks like a logical win-win-win situation. However, this comes with a significantly higher complexity than in the traditional funding model. There are specific contractual arrangements to be made between the 3 main stakeholders involved (Funded company, Private investor and Funding agency) resulting in a complex relationship. Reaching the necessary alignment in a limited period of time can be challenging. At Winnovart we are researching this aspect with all stakeholders involved. We currently look at the pilot schemes provided by the Innovate UK, as well as by the European Commission. Another interesting dimension to look at is the dynamic of this new funding model across the various regions of Europe.”
Check out Winnovart’s latest survey and survey results on blended funding schemes in the UK & Europe: