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Funding Innovation: the impact of equity and grant finance (some findings from research carried out by Beauhurst)

I was looking to write a final piece for the August E-News and what should drop into my Twitter feed but a link to a Beauhurst report on ‘How Innovate UK grants affect UK startups’. Never one to look a gift horse in the mouth, I downloaded the report and have summarised the key findings below, but first some context:

Background to the research

Beauhurst wanted to find out how equity and grant funding affect young businesses, so they analysed a huge number of trends in Innovate UK grant giving between 2011 and 2016 and looked at their entire equity funding dataset for the same period.

Some figures

In their dataset:

  • 8,220 companies were recipients of equity investment; 7,793 of Innovate UK (IUK) grants and 1,057 of both;
  • the average total grants, equity raise and pre-money valuation for those datasets as follows:
BothEquity onlyIUK grant only
Average total grants£493k£413k
Average size of equity round£1.79m£1.54m
Average pre-money valuation£6.72m£6.35m
  • 7,235 of IUK projects were to a micro sized participant;
  • The South West as a region had participants representing 5.9% of Equity and 9.2% of Grant (compared to London which had 45.2% of Equity and 16.7% of Grants).

Russell Group universities received £603.5m of grants compared to £307.8m of non-Russell Group universities.

In their words

The narrative section of the report has three main headings and I have summarised a few extracts from the report:

The regional pictureInnovate UK exemplifies the push of government cash out to other centres of innovation, with 8 of the top 10 grant winning universities outside of London. “Over time, private investors will follow”
Being a great partner“The Innovate UK projects most likely to succeed draw together a talented academic, top research infrastructure, and a business leader to solve a problem.”

“..many companies are not even aware of grant funding as an option.”

Grants and equity – the best of both worlds?“Businesses that secure both grants and equity outperform those that secure only grants or equity”.

The due diligence process for IUK and Equity have different focuses: technology (novel and achievable) and potential to make money, respectively. A business that wins grant and equity has therefore (arguably) proven it has two of the key factors for success: product and market – see below.

Beauhurst feel that their conclusion on ‘grants and equity – the best of both worlds’ has been validated by Innovate UK themselves, who have just launched the ‘investment accelerator’ competition for entrepreneurs, in which winners will receive Innovate UK grant funding and VC investment.

The report

A full copy of the Beauhurst report can be found here.

FEATURING: Richard Wadman
Richard qualified as a Chartered Accountant with KPMG in 1993. Since 2006 he has worked in Corporate Finance, firstly with the predecessor firm in Truro… read more
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