Getting to "yes" in a world of "no"…

Posts tagged ‘Technology Strategy Board’

Aiming (much) higher than Hackspaces and FabLabs…

In response to my last post on manufacturer hackspaces, Phil Jones (founder of the Future Manufacturing meetup group) left a comment mentioning “James Hardiman’s project to build 50 fablabs“. That project was inspired both by MIT and by the various FabLabs springing up in Holland: James notes that the first UK Fab Lab has arrived in Manchester, called (somewhat unsurprisingly) Fab Lab Manchester, with two more (one in Cambridge, one in Brighton) threatening to get started any minute.

Perhaps I should be pleased by all this, but just as with London Hackspace, this all seems to me to fall well short of the mark. Only people who haven’t actually worked in manufacturing would think that buying a 3d printer and a vinyl cutter would be sufficient investment to push an entire community into a making frame of mind. Prototyping for looks falls well short of prototyping for function or for mass production: additive mass manufacturing is still so far from a reality that I usually find it embarrassing when I see it in someone else’s business plan or pitch. A serious attempt at seeding manufacturing would have proper kit for startups who are driven to change the world, one good idea at a time: an EOS direct metal laser-sintering system, a 3-axis computer controlled mill, a decent laser cutter, and so forth.

But then again, almost nobody in the UK seems to have any sense of how this would work, or why it would be even remotely necessary For many manufacturing hopefuls (particularly those on or just out of design degrees that seem to be Sociology accessorized with a bit of Rhino3d product design module, though you’re not supposed to say that), the grimy side of physically making things is frequently perceived to be nothing more than a ‘design plus’ activity. For once you’ve designed yourself a sleek-looking Jonny Ives-style 3d model of your hypergadget, you lob it over the partition and the rest is easy… errrr, isn’t it?

Actually no, not even close: the gulf between the (mostly Western) turtleneck Mac-design-house mindset and the (mostly Far Eastern) mass production world has arguably never been wider. There are now a billion spectator seats at the manufacturing table for wannabe makers who can sense the global hunger for tools and gadgets: but making one of those into a success is, if anything, harder than ever right now. I don’t even want to speculate on how dwindlingly few people in the UK have a sufficiently good grasp of conceptual design, mechanical design, electronic design, interface design and software design to doggedly push a real project right through from start to finish, and who also ‘get’ customer development enough to build something that people will buy.

Of course, I appreciate that someday we may possibly all have desktop 3d replicators able to summon the world’s digital designs to our hands, one petulant (and probably virtual) mouseclick at a time: I’ve met plenty of people who give the impression of living off the whole sci-fi high of that notion. But for now, I’m sorry to have to say that it’s just nonsense.

This is because the practical limitations of 3d printing are many and varied, all the while the whole process of proper injection moulded parts is rapidly improving. Yes, that’s right: hardly anybody realizes that even though 3d printing is getting better all the time, injection moulding is also continuously improving and reinventing itself too. Going all ‘Wired’ by focusing on the eventual promise of 3d printing will likely cause you to miss out on the real manufacturing revolutions that are happening right here, right now.

So… who should back the UK’s manufacturer hackspaces? I previously proposed the Technology Strategy Board, but OpenCoffee-er Brian Milnes also suggested the Engineering and Physical Sciences Research Council (in fact, they both operate from the same building in Swindon). All the same, I think there’s a strong (and perhaps slightly surprising) case to be made that the best source of all would be NESTA, the National Endowment for Science, Technology and the Arts.

I’ll try to explain. Possibly the biggest argument against any kind of investment in manufacturing is simply that for most people - and I’d certainly include the majority of business angels in this category – building things is just too prosaic a thing to get particularly interested about. But for me, I see manufactured objects as a kind of beautiful miniaturized IP symphony: the customer development, the idea, the form factor, the design, the mouldings, the machines, the electronics, the sensors, the interface, the technology, the packaging, the assembly, the testing, the conformance, the software, the hacking, the platform, the recycling… all of it.

Where you see gadget, I see process. Moreover, where you see prose, I see poetry: for the UK will continue to have no manufacturing all the while it has lost its collective sense of the poetry of production. The ignominious application of production line metaphors to (the actually very creative) industrial life has helped alienate people from the process of making: whereas Lean Manufacturing instead helps to reconnect workers with the project as a whole, by seeing waste as a thing that erodes value, and that corrodes the relationship between customer and producer by making it unnecessarily fragile and contingent.

And this is where I think NESTA comes in. There is a crazy, valuable, wonderful space opening up here for a manufacturing hackspace with a direct remit not just to connect with (and empower) startups with a drive to build, but also to try to piece together and tell the story of manufacturing as it lives in the minds of modern makers. Yet this goes way beyond the whole tokenistic artist-in-residence type of conceit: for if we cannot as a society engage with the manufacturing dreamworld – for what are products but our collective dreams made solid? – then we will end up designing our FabLabs merely to satiate superficial toytown needs, to scratch parochial mercantilistic itches better ignored.

Ultimately, the future history of manufacturing that people such as I are trying to write is a far more nuanced thing than anyone seems to realize: it’s a matter neither of high-value goods vs low-value goods, nor of on-shore vs off-shore vs late assembly, nor even of in-house vs out-house, but one of doing vs not doing. That is, the world does not need more software houses: software is far too often a way of avoiding doing useful work, of sidelining bright people. Rather, the world needs more people doing things, building physical things, and merging hardware and software in useful and unexpected ways. Isn’t it true that apps are arguably the least interesting type of Sampo, that legendary Finnish “magical artefact… that brought good fortune to its holder“?

To my mind, the most subversive act of all is designing and building something new, for that serves to shift the balance of that-which-is-immediately-physical-possible: as useful day-to-day technology moves from spectacles to medicines to lifts to robots to exoskeletons, the sum of our parts becomes more than mere bodies. Yet we have become so accustomed to seeing novelty in apps as our collective metric for ‘interestingness’ that we often overlook this beautifully simple world of useful, empowering objects. Who, now, is looking to curate these machines of modern production, to bring out the subversive story of modern man as maker?

Manufacturer Hackspaces, the answer to everything…

The Technology Strategy Board has a hard job. Because just about every other source of grant and fund in the UK has been systematically dismantled over the last 3-4 years, nearly every practical aspect of supporting the UK’s technologically innovative SMEs has passed into its hands. I’ve chatted with the TSB’s David Bott during this year, and – really – carrying the weight of the country’s collective startup hopefulness on your shoulders can’t be an easy gig.

Also, the way that the TSB has typically structured its grant “competitions” gets in the way, and I’m not just talking about the way startups have had to be pre-funded in order to qualify (though this was, of course, famously not the case for the Tech City Launchpad1 competition this summer). The impression I get is that in order for these competitions to be politically useful, each one has to be seen to be supporting key aspects of government policy or business-minded aspiration (most notably Tech City, of course).

However… for me, there’s something just plain wrong with this whole picture. The biggest government aspiration of all by a country mile is that startups will (somehow) pluckily drive ‘UK plc’ out of its recessionary doldrums through high-value manufacturing and the alchemical miracle of export growth. Having tried for some years now to do that myself, I can honestly say to the TSB and BIS: nope, sorry, you have basically no hope of achieving that through this kind of approach.

Might the UK’s massed cadre of angel investors be able to help with this? To be brutally honest, they currently are simply not minded to finance any aspect of manufacturing: they can see it’s something worth doing, but they’d rather not do it themselves. Almost all of them – even the ones that are clearly smart enough to know better – have bought lock, stock and barrel into the whole VC make-believe world of “scalable software apps”. That is, too many believe that investment success is merely a matter of connecting jobbing Romanian programmers with some pie-eyed social media need specified by a noodle-eating 22-year-old Shoreditch hotdesker. £65K down for silly equity and the world’s your oyster, bish bash bosh: 10x “home runs” here we come… mine’s a Bollinger, cheers. If only the world of app marketing and customer discovery were merely a viral coefficient away, all software engineers would be billionaires, right?

(Dismal, eh?)

So… if manufacturing is the question, right now the answer is neither UK angels nor that wafer-thin sliver of government funding in the TSB’s hands punted out as competitions. But do I have a better answer?

Actually, I think I do. The TSB may not like to hear it, but my opinion is that the majority of its competitions are a waste both of their time and of government money. If the Coalition had any kind of genuine interest in seeding manufacturing in the UK, what they should do is sponsor some manufacturer hackspaces, like London Hackspace but kitted out with killer stuff for building physical things. Out goes the toy stuff like the MakerBot, but in come the 5-axis mills, the Solidworks, Rhino3d, Moldflow and OneCNC licences, the EOS direct metal laser-sintering box, the 70-ton vertical plastic injection moulding machines, the computer controlled lathes, etc. Essentially, the rapid, dynamic, capital-intensive, properly modern stuff that would let startups design and build stuff in no time at all. For what it’s worth, my bet is that full-on access to modern capital-heavy making equipment would empower people to start making stuff, and would kickstart a whole generation of world-changing physical hackers, not just the kind of effetely lightweight social tweakers angels seem to want to back.

What you’d want to do is find an integrated way of giving low-end industrial training to people who are looking to gain skills using these devices, perhaps in return for helping startups out: and to set up some kind of reasonable access scheme whereby startups can use the equipment to do prototyping and test runs but not production runs.

Also, you’d probably want to place these (two? three? four?) manufacturer hackspaces near universities, though not actually inside them. (Is there space in one of Hermann Hauser’s buildings in Cambridge? Could London Hackspace double in size?) I think it would be important to make sure that these stayed independent of the whole dismal university spin-out culture: this should be a world-changing toolkit for dangerous, practical people, not for academics per se. What the government desperately wants to bet on is that the UK still has such edgy, driven makers who will find a way of doing stuff. Well, speaking as someone who fits that category pretty damn well, I can tell you that such people now find themselves standing on air – there is nothing to support them. Nothing at all. And a manufacturing hackspace or two would be an unbelievably large, positive step in absolutely the right direction.

So, how about it, TSB? I suspect that you’re just as dissatisfied with your funding competitions as the poor saps currently reading and re-reading the applicant notes to rejig their pitches to finesse an extra 1% from the independent judging panel. Does such a process genuinely validate real development talent and ability to service customer need, or merely the ability to fill out the forms for a bureaucratically minded pitch?

From my perspective, the TSB has wearily followed this competition path more than long enough to know that it’s time for a change: it now needs to back interesting stuff that challenges the status quo and empowers new, crazy, unexpected, export-centred physical businesses. Stuff that changes the world, one good idea at a time.

So, off you go, then, TSB people. Talk with the ministerial, the great, and the good – James Dyson? Phil O’Donovan? – and find a way of setting up properly ambitious manufacturing hackspaces. Take some first steps along that road (however tentative), and I’ll be with you every inch of the way. Find a way of being brave… really, you know you ought to, and – if you just asked for it in the right way – you very probably can.

Innovate11, VCs, Lean Startups and design…

Willkommen!

Earlier this week, the Technology Strategy Board’s held its “Innovate11″ conference at the Business Design Centre in Islington: but rather than traipse into town and lose a day’s work, I decided to stay working at my PC with the TSB’s live web stream burbling in the background. As you’d hope/expect, there were plenty of familiar faces on show:-

  • The TSB’s Iain “Old Town” Gray as the cabaret host (or am I thinking of Joel Grey?)
  • Amadeus’ Hermann Hauser and my old pal Alex van Someren
  • Deyan Sudjic (director of London’s funky Design Museum)
  • Will Hutton (who was plainly annoyed by the indifferent reception he received)
  • Coalition business ministers David Willetts and Vince Cable.
  • etc

Pretty much everyone on the stage stayed in character, with the notable exception of the wirily energetic Hermann Hauser, who I thought was on particularly fine form talking about the slightly surprising business logic behind Solexa’s success.

I must admit that while Alex van S was going through a fairly sweeping summary of contemporary VC pitching wisdom (e.g. Guy Kawasaki’s famous 10/20/30 maxim, i.e. 10 slides / 20 minutes / 30 point font minimum, la-la-la), I kind of zoned out for a while, musing about the whole challenge of investing in startups.

You see, the whole VC model is to invest in high growth companies early in their curve, so that you stand a chance of getting a few 10x “home runs” in your portfolio, to balance out the (sadly almost inevitable) duds that you’ll also pick up. In the overall business landscape, such high-performing startups are without any shadow of a doubt statistical outliers – so to my eyes, the VC challenge is surely to use nous and experience to search out exceptions to the rule, not companies who slavishly follow the rules. For all the adulatory press that has followed Steve Jobs’ recent death, for me the most telling stories have been the ones that point out how mainstream investment criteria would exclude him rather than reach him.

My point here is really that if VCs need to find exceptions to the rule, why do they now seem to invest so much time in building yet more rules for potential investees to follow? For example, Alex stressed that Amadeus never invests in one-man-bands, while other VCs love to talk about the shamelessly brutal “truck count” metric (= ‘the number of individuals in an organization that could be killed by a truck before that company becomes unable to function’) to emphasize the same point – that small is fragile. Yet I think a typical entrepreneur (a) has to do ten different jobs simultaneously just to get by (and I suspect that’s pretty much always been true), and (b) builds up a network of partners, suppliers, mentors, advisors and indeed customers all helping him/her to get the job done. OK, there’s only one of me, but my network is an army sans frontieres, so what’s the metric for that? Set the [number of employees] field to [1] in Amadeus’ pre-funding application form and you’ll no doubt get filtered out straight away: ‘computer says no*cough*.

Perhaps the bigger issue is whether VCs spend too much effort filtering for excellence when they should be looking for brilliance – there’s a big difference between the two, as my old school housemaster Mr Tarrant used to say.

Anyway, going back to Innovate11, while listening in to the design panel’s protracted noodlings I was struck by how very similar the kind of design-led approach the participants described (customer-focused, iterative, uncertainty-based, etc) was to the whole Lean Startup thing. And the more I’ve thought about it since, the less I can see any obvious differences.

So here’s what I now think: that for Lean Startups, treating everything as if it were a design process is claimed to be the best way of doing business. Furthermore, below this top-level approach there lies an implicit set of (what I personally think are actually fairly corrosive) claims:

  • that design-driven iteration is vastly superior to principle-driven architecture;
  • that what other people (particularly customers) know is vastly more important than what you know;
  • that it is more practical to fix what didn’t work than to predict what should have worked; and
  • ultimately, that it is better to cope fast than to manage well.

For me, the biggest irony of all is that for all Lean’s claims of being a scientific “methodology”, it is built around an inherently anti-science design loop, predicated on what looks eerily like a postmodernist dismissal of Enlightenment knowledge. Why would a Lean Startup need any PhDs or even (*spit*) MBAs, if its development starting point is always going to be one of ignorance?

Pointing this out doesn’t make me a Lean “hater”, it just means that I think I can see Lean for what it really is. Which is to say that, contrary to what is normally claimed, Lean is not about saving money, avoiding process waste or even about learning-focused development, it’s simply the claim that strongly iterative design-based development is the best strategic choice best for all startups. Which isn’t really supportable, IMHO.

As such, I see Lean as arguably just an overreaction to the long-discredited “if you build it they will come” business strategy, which I think overbiased startup discourse in quite the opposite direction (i.e. towards PhDs and MBAs, and towards big science over iterative design). Personally, I try to follow a more blended approach, fusing big science and iterative design within the constraints of a shoestring budget – it may not be fashionable, but it works for me. :-)

TSB funding workshop / pitch day…

And so it was that eighteen startups bearing £100K TSB promissory match-funding notes came to London to stand before a roomful of people (a good few of whom were genuinely angels) and have their eight-minute pitches evaluated for investability. On the same bill was the comic relief, the twenty nearly-but-not-quite-funded startups – myself included – whose two-minute pitches were abutted together to form a kind of weirdly psychedelic blur, intended to be some kind of mashed-up Powerpoint speed-dating session.

I love catching up with old faces, putting faces to email addresses, meeting new people and watching new pitches, and I thoroughly enjoy the inevitable rush of pitching (getting a big message across in two minutes is a great writing and performance challenge), so I had a thoroughly great time: and as far as the Technology Strategy Board goes, “I love it when a plan comes together“, regardless of whether David Bott and his crew did or didn’t shave a few corners to push through to the 128-day end line.

But putting all the adrenaline aside, though, the real issue is what to make of the whole event: and as I sat on the train coming back, I have to say that I felt a little bit of sadness. Even though a £100K TSB promissory note could well have been a wonderfully positive thing for my particular company, I do wonder whether it will genuinely help even half of the 18 grantees. For a start, the grim reality is that £100K doesn’t buy you much in Old Street: there’s a kind of implicit £20K “Tech City tax” (in terms of living, commuting, overheads etc) imposed on you just for the, ummm, privilege of working there, rather than (say) Croydon.

For another, because the TSB is only technically allowed to help companies back free-standing loss-making projects (to the point that if you make short-term money from the grant money, they probably won’t cover the payment), all you’re really allowed to do with the grant-plus-match-funding is learn stuff. Yes, in its own curious way the TSB forces grantees to run projects as learning-based “lean startups”, where the important outputs are all intangible, and the most important thing is failing fast, and then pivoting / iterating as a result.

Ultimately, this makes each TSB Tech City funding tranche contingent on finding one or more angels who would be happy to lose invest £100K in something entirely intangible as long as the TSB also loses invests £100K. And I have to say that I have met very few active UK angels who have pockets deep enough to make such truly conceptual calls: as a rule, they don’t yet get Eric Ries’ whole “lean startup” movement. For all the talk of digital media, most social media pitches are just short-term hacks: truly intangible angel investment has fallen drastically out of fashion over here (if it ever was in fashion, for some would loudly argue not).

However, arguably the biggest structural problem of all is that UK angel investors are, by and large, attuned to investing in tangible profit-making companies rather than free-standing intangible loss-making projects: and I suspect most of the angels who eagerly attended yesterday will have felt rather caught in the middle. This was perhaps best exemplified by the Somethin’ Else people, who essentially said: Option A is to invest in our high concept £200K 3d audio game project, while Option B is to invest in our £6.5m turnover (I don’t remember the precise figure) international audio production company from which Option A came. It’s no big secret that most angels are looking for something between the two, that somehow manages to extract the best of both worlds: I can see how presenting such a sharply polarized smorgasboard may end up getting neither (for all the individual merits of both Options A & B).

I don’t know: I suspect the TSB may (wrongly) believe that giving money to startups can only be a good thing for them, when everything comes at a cost. It all reminds me of a short story that popped fully-formed into my mind a few days ago:-

Once upon a time, a boy inherited a box of ancient Arabian junk. While polishing an eerily familiar lamp, out popped a genie. “Thank you immensely for releasing me from the magical prison in which I have languished these long millennia“, pronounced the genie, with more than a hint of Brian Blessed. “I therefore grant you two contingent wishes.

The boy was puzzled. “What on earth are ‘contingent wishes’?“, he asked.

My goodness – don’t schools teach you anything these days?” boomed the genie genially.

No, not really“, sighed the boy.

Well“, the genie heaved, “they give you what you want, but at a matching cost. For example, receiving great wealth would plunge all your friends and family into abject poverty and debt.

The boy sat and thought for a while. “My first contingent wish“, he said eventually, “is to be just a little luckier in everything I do for my whole life.”

Ah, a good choice!“, said the genie. “I grant you your wish, but with the contingent cost that if you tell anybody that you are the recipient of magical aid, you will instead be just a little less lucky in everything you do.

Then my second contingent wish is easy“, said the boy. “I wish to forget that I ever met you.

“No!”, exclaimed the genie, “that means…

But it was too late. With a loud squelch and a flash of green light, the genie was yanked sharply back into his lamp prison for another millennium. The boy stood there blinking blankly, with just a tarnished old lamp in his hand. What had he just been thinking about? He couldn’t remember. All the same, he did feel like it was going to be a good day…

Basically, there’s no such thing as a free lunch, or indeed a free grant. Just because you cannot immediately see the cost doesn’t mean that there isn’t one.

OK, so no grant this time… :-(

I’m disappointed to have missed out this time round, of course: but a Tech City grant was always going to be a bit of a long shot for a Surbiton-based non-social-media startup. Some of the TSB’s anonymous judges clearly liked my whole “Soft Factory” pitch: but given that the point of the competition was to fund loss-making collaborative Tech City projects rather than Tech City companies, perhaps I did ultimately end up veering too far towards the latter (certainly, one of the judges felt compelled to reiterate this point several times). And being in a consortium of one probably didn’t help either. Oh well. :-(

Still, I’ll be doing my 2-minute thing at the TSB’s investor day this Wednesday (please feel free to say hello!) in the 3.55pm-to-4.25pm Pitch Session #5 (AKA the mid-afternoon graveyard shift). Given the homeopathically low amount of interest that UK angels tend to have in manufacturing and the brutal-but-unavoidable fact that angels are mainly there to sniff around the 18 grantees, my expectations for positive funding outcomes from the day are perhaps even lower than the normal ankle-highness. All the same, it’s always nice both to catch up with people you already know and to meet new people. For example (going through the list of attendees), Twickenham-based Wren Capital looks interesting, as does MMC Ventures: and perhaps I should be cultivating more of a relationship with NESTA Investments. Anyone else there I should be talking with?

The TSB and baby elephants…

Well, there’s something that doesn’t happen to me every day – a fairly impromptu 1-hour meeting in a Starbucks on Piccadilly with David Bott, Director of Innovation Programmes at the Technology Strategy Board. Despite having gained his business experience at ICI and National Starch (which you might think would be enough to suck the marrow out of anyone’s bones), he turned out to actually be an interesting and surprisingly passionate guy. Incidentally, he claims that his blood boils if you ever call him the B-word (‘bureaucrat‘), so probably best avoid that if you happen to meet him, OK?

First off, he gave me a whistlestop tour of the secret political history of the TSB – basically, it started off as a fairly small advisory board to the old DTI (hence its name), but then got fashionably spun out into a Swindon-based quango, at which point most of the civil servants jumped ship. (What’s wrong with Swindon? I fondly remember the map of it inside XTC’s second album “Go 2“.) Anyway, when the music stopped, the TSB business people were left holding the baby a portfolio full of ‘tech fairy godmother’-esque give-away-money-for-collaboration-but-glacially-slowly programmes to administer: an unwitting reverse takeover, if you like. Yes, things were definitely more ‘calendar’ than ‘timetable’ back then, but they’ve generally managed to tighten The Process up so that a typical grant application is faster than your pet elephant’s pregnancy, which is without doubt A Good Thing (the improvement, I mean, not the pregnancy).

Continuing its kaizen, the TSB’s next stretch targets are clearly (a) aiming more at startups than established SMEs, and (b) trying to get to final grant insanely fast, both trends well exemplified in the recently-mislaunched Tech City Launchpad1 competition. But, of course, now that Round 1 of that is over (and my somewhat outrageous pitch got through successfully, thanks for asking), his group has embarked on an as-yet-not-quite-fully-focussed ‘hearts and minds’ short-term offensive aimed largely at business angels – for without angelic buy-in, the TSB’s promissory note Tech City prizes would amount to basically zero. As part of all that, Monsieur Bott will be talking at the BBAA’s big yearly shindig / summit tomorrow, so it’ll be interesting to see what reaction he gets there.

What next? Well, at this point in the blog ‘meta-script’, I’m supposed to run the gauntlet a bit: be a bit vituperative, prick a few bubbles, Tell It Like It Really Is – you know, the whole ‘Bite The Hand’ pattern. Or else I’m supposed to roll over in gratitude and relief at getting through the first round. But back in the real world, things are much more complicated than either of those comedy blogging extrema. I’m sure you can guess what I’d like the TSB to achieve at the angel pitch day in August: a barnstormer of an event, a televised tech evangelical hoedown, crackling with genuine investment fervour and (why not say it?) people signing standard contracts and writing cheques. But (though I’ll stress that David Bott didn’t explicitly say this, it’s just me reading between the lines a little) the TSB people seem to me to be in something close to awe of the angel community (and in particular the angel networks), which makes me wonder how on earth they’re going to pull that whole trick off while treading on eggshells.

What it all comes down to is this: I don’t honestly believe that UK entrepreneurs collectively lost the plot over the last four years, that en masse they all suddenly decided to pitch unfundable propositions. Rather, the real problem was that a lot of lead angels left the arena (wings seared by a down external market), at just the same time that banks were restructuring both working capital and early stage startups right out of their portfolios. All that’s left standing is a new generation of so-called ‘latent’ (i.e. wannabe) angels, enticed by the tax breaks but appalled by the increasing time to exit (which in turn has largely been caused by Euro VCs moving their portfolios downstream to ever later-stage businesses). As I discussed a while back, all the trends are headed in the wrong direction.

Hence from my perspective, the situation right now is that the TSB people have only just started engaging with the real startup finance disaster movie that’s been unfolding over recent years: so this is where their collective challenge suddenly morphs into something subtler, darker and trickier. Finding ways to give money to techies to help them build interesting, market challenge-driven stuff is essentially a fairly easy gig: but understanding, influencing and steering investment psychology is very much harder. Welcome to my world of pain, David! Enjoy!

TSB, grants, funding… where now?

In the run-up to the results of Round 1 of the Tech City Launchpad1 competition being announced, I’ve been thinking about the Technology Strategy Board, idly wondering to myself if its whole organizational remit actually makes sense any more. What exactly am I talking about here? Well…

“The vision of the Technology Strategy Board is for the UK to be a global leader in innovation and a magnet for innovative businesses, where technology is applied rapidly, effectively and sustainably to create wealth and enhance quality of life”

Already I can feel the keyboard sagging beneath my CTRL-V fingers under the weight of heavily unrealistic expectations. For a start, innovation isn’t primarily about creating wealth: sure, 10% of the mix is product invention, and 10% is product execution, but the other 80% revolves around engineering a social revolution amongst your customers that works in your favour. Hence, the “create wealth” bit is no more than a byproduct of getting all the other stuff basically right. In my experience, it’s exceptionally rare that raw aspirational greed alone carries entrepreneurs to any kind of positive finishing line (though if you’re looking for qualities that do, I’d expect genuine customer empathy and ruthless tightfistedness to sit atop a rather short list).

Quality of life” is also a particularly value-laden phrase, when the much-used template to service-based wealth creation has been to find an ingenious way of replacing full-time human intermediaries with cyber intermediaries or with (and I feel nauseous at having to type the dread words) some social media equivalent. Really, what tangible quality of life improvements do such ingenious margin optimizations ever bring? This strikes me as a rather tragic legacy of the MBA financial engineering toolbox: personally, I’d rather employ all that ingenuity and heroic development effort to create something new of universal value than just to eliminate somebody’s scraggy 15% margin, but there you go. (And please don’t get me started on the policy of attracting overseas startups to the UK, or on the whole centres-of-excellence nonsense, or I’ll be typing all day.)

So far, so quibbly: but the reason I’m dissecting a single sentence here is so that you don’t have to go to the trouble (as I did) of trawling through the TSB’s entire May 2011 “Concept to Commercialization” document, because that basically comprises this same sentence repeated many times over. In all of that, the real “dog that didn’t bark” is for me the thorny topic of business angels: would you be surprised if I said that the word ‘angel’ was mentioned just once in its 27 pages?

What has happened is that the TSB seems not to have noticed that the world has changed… really changed. Even though funding startups has always (even in boom years) been difficult, a combination of unhelpful trends has now scaled this challenge up to, well, extraordinarily difficult. At the same time, funding is coming in ever later and lower, with less and less assistance from banks and VCs, and with ever-later exits: while many formerly active angels have, like Elvis, left the arena for the last time, leaving behind them a thin layer of relatively unskilled, so-called “latent” angels, few of which I expect ever to bite the bullet and invest (let alone lead a round) in startups.

All of which is to say that the territory the TSB’s remit would have it cover has moved beneath its feet, because there is precious little risk capital of any colour available to companies looking to commercialize new things – to turn technical invention into social innovation. In fact, I’d go so far as to say that right now there is no effective startup equity investment community in Britain: the deals I get told about tend to be ever later (say, post-revenue), on ever worsening terms, and/or under shamefully one-sided contracts.

So it is against this overall sectoral backdrop that I measure the TSB’s effectiveness: because its traditionally slow-to-start, strategy-heavy, project-based commercialization competitions have largely been targeted almost entirely at non-startups (for these are the only companies who can meet the accounting and (crucially) pre-funding criteria the TSB has listed as prerequisites for grant funding), I don’t believe that (what I would call) startups have to date participated in them to any significant degree.

What, then, are we to make of the Tech City Launchpad1 competition? On the one hand, it seems like a rational response to these same investment macro-economic trends, in that it is aimed squarely at startups; has a relatively brisk funding timetable (as opposed to what could only sensibly be described as a ‘calendar’); is structured around post-funding; while using (shock horror) two-minute YouTube pitch videos as a zeitgeisty prequalification mechanism.

Yet on the other hand, the TSB doesn’t yet seem to have engaged with those same angels it’s ultimately relying on to match funds against the grants they’re proposing; talk of “Tech City” / “Silicon Roundabout” reeks of Cool Britannia-esque political sloganeering, 2011-stylee; the competition seems to have an implicit focus on social media / digital media service company startups, which is a long-deflated VC bubble (in the UK, at least); the level of grant on offer is a-fall-between-two-stools type, in that it is big enough to prototype with but probably too small to scale; and so on. It’s progress, sure: but there are lots of other things in the same balance, too.

Part of me really wants Tech City Launchpad1 to be a success for the TSB: but I have to point out that the ten grants on offer are arguably just a small splash in its overall funding ocean, and I’m far from sure that it’s a programme that currently has sufficient local community virtues to roll out across the UK (as seems to be the intention). Is Tech City a genuine, runaway viral-like success story, or merely an attempted self-fulfilling prophecy that has sufficient short-term politically expediency for the TSB’s masters to want it to throw money at? I don’t think it’s being overly cynical to see the latter position as being more likely to be true.

On reflection, what do I think about all this? Well, I don’t for a picosecond believe that the structural problems of the UK investment community can be solved (or even really be assuaged) by grant competitions like this, however well-meaning. Further, I strongly doubt that the underlying trends causing these structural problems are going to improve: if anything, I suspect they are going to get worse over the next 5-10 years.

So, if the TSB genuinely wanted to make a positive difference for startups, are grant competitions the answer? I think not: instead, I think that it’s money should be put into radicalizing and liberalizing the whole angel network concept. A capped 1% success fee on funding, set up regular free meetings throughout the country (5/6-minute pitches, no pay-to-pitch, what kind of foolishness is that?), and devise ways of incentivising angels not only to attend these but to invest in startups presenting there. How? Say, by supplying TSB-approved investment documents (AKA “reducing friction”) and giving bonuses contingent upon investment within specified time periods. It could also use low-ish tech (say, Skype videoconferencing?) to open the process up to overseas investors – as an entrepreneur, I’d say we don’t actually want their startups here (we surely have plenty of those already), but we do want their inward investment, right?

That is, I think the TSB’s most effective role in enabling invention to be turned into innovation would be to reposition itself as a social investment enabler on a truly grand scale. For only the act of doing this on an epic social scale would stand any chance of making a real positive difference to society. And ultimately that’s the whole point of the enterprise… isn’t it?

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