CEEDR has been having an impact on government policy development for small and medium sized enterprises (SMEs) since the early 1990s, particularly with regard to business support and policy, and SME access to finance. During the last decade CEEDR has developed a strong specialism in the early-stage financing of innovative SMEs and financing the Cleantech sector.
We have worked extensively with the Department for Business, Energy and Industrial Strategy (BEIS – formerly BIS), British Business Bank (BBB) and Innovate UK (IUK), as well as other central government departments and regional level organisations.
Our work includes both research for policy (for example, into SME attitudes and behaviour) and research of policy (for example, assessments of policy effectiveness and impact).
Our programme of research for BEIS has helped reshape the Government's business support offering:
Concerns over SME access to finance increased from 2007, with the onset of the financial crisis and have continued through to the 2020s COVID-19 period. Our research on this topic – which started with a major study on the financial needs of ethnic minority businesses for the British Bankers Association in 2001 – has contributed to the policy discourse in relation to the extent of market failure of various types of finance, and the nature of relationship between entrepreneurs and finance providers. The past decade has seen particular focus on financing SME early-stage innovation and green finance for Cleantechs.
Exploring the success and barriers to SME access to finance
Dr Robyn Owen lead authored this policy brief. What are the potential growth impacts of external finance on UK SMEs? Who seeks it, who gets it, and who is discouraged? Drawing on analysis of the 2015 UK Longitudinal Small Business Survey of 15,502 SMEs and interviews with six senior staff from Oxford Innovation who provide finance support to high growth firms, we provide robust contemporary evidence and key policy implications. Full paper here.
Dr Owen also lead authored a follow up ERC Policy Brief An Investigation of UK SME Access to Finance, Growth and Productivity, 2015-2017 for the Enterprise Research Centre (Research Paper No 79, published 2019) which used LSBS longitudinal survey data to highlight that SME access to finance is unlikely to improve SME growth and productivity without other associated forms of ongoing business support, particularly in respect of financial management. Full paper here.
Public supported venture capital (VC) initiatives
CEEDR has developed a strong track record of scoping and evaluating Government Venture Capital (GVC) initiatives in the post Global financial Crisis period over the past decade. Our work, led by Dr Owen, has particularly focused on the early-stage financing of innovative potential high growth SMEs.
Our study of the Early Assessment of the Impact of BIS Equity Scheme Initiatives (BIS, 2010) demonstrated both the need for public intervention in the early stage VC market and its beneficial impacts on investee businesses. These results fed into the Coalition Government's decision to extend the Enterprise Capital Fund focused on start-up and early-stage investments.
The Early Assessment of the UK Innovation Investment Fund (BIS 2012) indicated UKIIF's role in addressing the current gap in the supply of UK equity finance, unmet by private and institutional VCs. Our findings underlined the continued need for government backed hybrid equity investment to support early stage innovative high growth oriented businesses in sectors such as life sciences with longer term investment requirements.
Dr Baldock (Owen) and Professor North's paper based on this research entitled 'The role of UK equity funds in addressing the finance gap facing SMEs with growth potential' was awarded best paper in the finance track at the Institute for Small Business and Entrepreneurship Conference (Dublin 2012), attracting particular interest from academics and practitioners, including the sponsors Allied Irish Banks.
Interim Assessment of Enterprise Capital Funds (ECFs) and Capital for Enterprise Fund (CfEF) a project led by CEEDR’s DR Owen for BEIS and British Business Bank (2013-14) represented a full mid term evaluation of these GVC public-private co-finance programmes investing in UK potential high growth SMEs. The reporting (as yet unpublished) demonstrated that the interim GFC CfEF mezzanine funds programme had delivered strong econometric impacts on jobs and business growth, whilst analysis of 75 ECF equity invested SMEs (mainly at seed and series A early commercialisation) demonstrated strong innovation, jobs and sales development and wider economic multipliers, leading to Treasury funding further programme tranches of upwards of £1bn.
Early Assessment of the Angel Co-investment Fund CEEDR’s Dr Owen and Glasgow University’s Professor Mason undertook this early evaluation of the UK’s then pilot business angel co-fund administered by the British Business Bank (BBB). Findings from this qualitative study which involved pairs of lead angel investors and their investee early-stage SMEs, alongside wider market analysis, demonstrated that the programme was delivering effective gap financing to leverage the scale of angel syndicate investing.
SME Finance London was a joint CEEDR and SQW scoping of London’s SME finance in 2013 to establish the need for the subsequent £85m London Co-investment Fund (LCIF) to invest in London’s Series A tech companies to help with their commercialisation.
Equity Finance in Northern Ireland – Dr Owen joined a team of researchers led by SQW to scope out Northern Ireland’s early and scale up stage finance for potential high growth businesses for DETI, Northern Ireland Government. The study’s ecosystem approach revealed the peculiarities of the NI market with strong cross border ties to GVCF and the Halo angel network, but weaker ties to mainland UK investors and Government programmes.
Regional Investment Funds – Early and Interim Assessment – Dr Owen has been working extensively with lead researchers SQW on the early and interim evaluations of the British Business Bank Regional Investment Funds, which have underpinned UK Government levelling up policy since 2017. The early assessment of the three English regional funds (Northern Powerhouse, Midlands Engine and Cornwall and Isles of Scilly) was completed between 2018-2020 and the next stage interim evaluations of these funds will take place between 2021 and 2023. Initial findings demonstrate the wide reach of the funds in these regions and the importance of British Business Bank regional presence to ensure that local business support networks (e.g. LEPs and Growth Hubs) refer to the schemes.
Green Finance and Early-stage Cleantech Innovation Finance
During the past decade CEEDR’s early-stage innovation finance work, led by Dr Owen, has developed a strong interest in green finance and the financing of Cleantech innovation. This work stream has been supported through Dr Owen’s attachment as a Research Fellow to the ESRC Centre for the Understanding of Sustainable Prosperity (CUSP; 2016-2021), where she leads a stream of research in this field.
Investment Accelerator – Evaluation (2018-2020) – awaiting publication in 2021. Dr Owen worked closely with lead researchers SQW in this early assessment of Innovate UK’s Investment Accelerator Pilot. This programme aimed to improve early-stage private equity financing of long horizon health and low carbon transport and infrastructure SME innovation from post initial proof of concept seed funding stage. It developed an innovative grant matching to private VC approach. Research drawn from funding providers and circa 40 company beneficiaries, alongside Beauhurst’s data linking econometric work and counterfactual surveys, found an effectively co-finance process, but one which required further rollout to other types of funders and larger scale funding for follow-on investing. The programme has been expanded (from £50m to £75m) and expanded to include regional business angels and larger funding rounds.
Redefining SME Productivity Measurement and Assessment for a Low Carbon Economy (2020) for the ESRC Productivity Insights Network (PIN). This research investigated early -stage cleantech innovation financing in the UK and the relationship between environmental impact performance indicators and early-stage investors’ decisions to invest in SME cleantech innovations. The report highlighted the lack of coherent UK government policy around environmental messaging for investment and the disconnects between government agencies and also between private investors and the cleantech businesses themselves. It highlighted that government policy alongside improved roles of specialist private support agencies could lead to a more efficient UK cleantech finance escalator – and in turn greater low carbon impact.
Financing high technology SMEs
Study into the impact of the financial crisis on the financing and growth of technology-based small firms in the UK demonstrated a widening funding gap, which underlined the importance of public supported initiatives.
Comparative research in relation to New Zealand (with Professor David Deakins) led to invitations to Professor David North to present at a policy symposium and to the Ministry of Science and Innovation in New Zealand on the growth potential and financing of technology-based SMEs (2011).
Access to bank finance
Our study of Scottish SMEs undertaken for the Scottish Government (2007) found little evidence that businesses with strong business cases were being turned down for finance, although there were specific issues relating to the nature of the relationship between SME owner-managers.
Middle-capitalisation (mid-cap) businesses
Our study into the difficulties that mid-cap businesses face in raising Bank Finance (BIS 2010) concluded that these constrained the growth and development of only a relatively small number of successful and moderately performing businesses. The Minister for Business and Enterprise reported these findings in a BIS Press Release (30 December 2010).