TechNation future in doubt as Barclays set to be awarded its innovation funding contract

So, this happened.

Now, the vast majority of people don't understand the economic rationale for doing something like this. Many in the general population will suddenly be fearful because a private UK bank has been given such responsibility.

The trouble is this could turn into another good idea done badly, but let's look at the potential.

At the moment, there are a few main routes of support for the UK startup and scale-up scenes. TechNation and InnovateUK are two of them.

1. InnovateUK is policy and academia heavy, commercialisation light (as demonstrated by the audit a few weeks ago)

2. TechNation is messaging, report and consultancy heavy, innovation light (most SoftTech isn't protectable innovation)

Both of these also take up a lot of cash just to run the funds or paying salaries within these bodies just to write reports, run these events or (often incompetently) evaluate long applications which are all highly inefficient uses of the cash.

Better Efficiency Elsewhere

In the German ecosystem, they use a completely different mechanism. The first investment is either a small investment or a Safe Note. As a founder, you need nothing more than a one pager, or small proposal and a discussion/pitch. They do the rest and that investment is then made tied to your milestones to be giving any more funding (sometimes these milestones are also commercialisation ones to build up your business plan).?

It's a form of funding that matches what's commonly called "drip funding". It is like having many multiple seed rounds based on milestones, which combine together investment with project management automatically and the future investment is tied into actual cash flow and balance sheet performance (this is also how we fund our innovations at Axelisys , with a much smaller pot of cash available). Running it this way is less than 5% of the work to monitor and even apply or the fund, compared to the UK system and is a much more efficient use of the cash compared to the monitoring officer methods used within InnovateUK, and the empty, narcissistic "wow me" that exists in TechNation. Both of which risk spending more money managing the organisations they run than the ones they fund in each round.

Given banks are much more efficient processors of money and have the risk management skill lacking in both InnovateUK and TechNation, giving it to a bank is not necessarily a bad idea. Because they make more efficient use of the cash.

However, there is a key difference between the way Germany does it and the way Barclays have been assigned it.

Deutche Bank runs the German innovation funding ecosystem.

...and Deutche Bank is 75% state owned. Giving it the controlling stake in the bank.

That means the Investments are German focused. You can be funded to enter the Germany ecosystem though, so it's very open and any profits from the investment, effectively make their way to the German state (and thus back to the taxpayer) via the dividend.

Can Barclays Go Bad?

Yes, because this is not the case with Barclays. Barclays was also never bailed out by UK Government, so it owes nothing.

Now, I haven't seen the text of the agreement, but if Barclays Eagle Labs give a much more coherent offering to the ecosystems they are in, not only is there mentoring and events, which are useful for many at the start of their entrepreneurial journey, but worthless once you've done them once, Barclays also provide space and access to some resources with this. With funding responsibility, it might provide a more holistic, inclusive funding system that runs more efficiently for the taxpayer and innovation funding sources, even if the profits don't yet return to the taxpayer in the same way they do with Deutche Bank.?

However, because Barclays is not a state owned business with a state controlled share, this has an impact that many don't realise could happen.?

Invested funds coming from government sources like BEIS, could result in profits leaving the UK into the open market and not coming back to the taxpayer.?This runs the risk of taxpayer money, funding the creation of UK businesses and never returning directly in anything other than tax (instead of tax and dividend).

So, to me, the jury should still be out. At least until the text becomes clear.

Update: According to TechCrunch, it turns out that TechNation may well have breached state aid rules by failing to become self-sufficient (a strange reason). But this is a serious form of market distortion, which creates an anti-competitive position for others in the ecosystem. The decision may still need to be finalised and the TechNation crowd and their supporters are pulling out the stops on LinkedIn to try to regain it from a public opinion standpoint. This doesn't change the opportunities and risks position more widely though.