The UK is forcing its entrepreneurial talent to set up shop in the US rather than at home as a new report reveals that tech start-ups in the US receive 10 times as much government financial support as their counterparts in the UK.
According to Cambridge University's Centre for Business Research, the UK should urgently introduce a US scheme that has successfully converted billions of dollars of taxpayer-funded research into highly valuable products and helped build hundreds of successful companies.
The report, "Secrets of the World's Largest Seed Capital Fund", highlights how the US government uses its Small Business Innovation Research (SBIR) programme and procurement budgets to build successful science and technology industries.
"Through such mechanisms early stage US businesses get access to government funding for R&D which is at a level significantly larger per company than UK firms receive, probably by an order of magnitude," said the report's author, David Connell.
Unlike the complex web of UK government grant schemes and R&D tax credits, the SBIR programme provides 100 per cent funding right from the very start of a business's life, and is therefore much more effective at getting new businesses under way.
Founded in 1982, the SBIR programme provides over 4000 research and development contracts and awards, worth over $2 billion every year to small US companies, including start-ups and university spin-outs.
The SBIR program supports potential 800-pound gorillas when they are still in the diaper stage
"The SBIR program supports potential 800-pound gorillas like Microsoft and Dell when they are still in the diaper stage: it is seed money for half of a country's GNP, 30 years from now," said Cor Drost, who benefited from the US programme to set up a successful medical technology company.
SBIR has also helped thousands of these businesses onto the first rung of the lucrative US government procurement ladder – an area in which small firms in the UK find themselves at a huge disadvantage.
Moreover, other US "set-aside" legislation steers a hefty 40 per cent of government procurement budgets, both directly and indirectly, towards US small companies.
"The SBIR programme probably plays a more important role in the US than venture capital in the funding of early stage science and technology companies. And the lack of a similar programme in the UK puts our hi-tech firms at a significant competitive disadvantage," Connell said.
"Despite government efforts, we still do not have effective policies in the UK to ensure that public sector procurement plays its full role in the innovation economy we need to build to remain competitive."
In an effort to bridge the gap between the UK government's rhetoric and reality, Connell is also leading a campaign to bring an SBIR-type initiative to the UK, working with Kitty Ussher MP on a Private Members' Bill that is scheduled to receive its second reading this autumn.
"The SBIR programme is one of the most successful and best regarded of such policies and it comes from the nation that is probably the most successful of all in building science and technology industries. We would do well to study and imitate it," he argued.
But for British entrepreneurs like Cambridge University's Dr Helen Lee, it is already too late. Dr Lee set up the Diagnostic Development Unit at Cambridge University's Department of Haematology with the aim of developing innovative, simple, rapid and inexpensive diagnostic tests, particularly for use in developing countries.
Yet she felt compelled to set up her biotech company, Diagnostics for the Real World, in the US, and has so far received $5.5 million of SBIR funding from the National Institutes of Health.
"We would all have preferred to establish the company in Cambridge, rather than California, because Cambridge is where the research and development has taken place," she said.
"But the funding gap for start-up biotech companies in the UK is such that we did not have a choice."
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