A piece in this morning’s Guardian gives voice to the criticisms of businesses and commentators over the use of funds by the Technology Strategy Board. It’s slow, it’s bureaucratic, it’s unaccountable. Yada-yada-yada. Oh, where to start…
The Guardian reports “entrepreneurs are complaining that the significant amount of time it takes to apply for [a TSB grant] is an investment they can’t afford”.
There are 3 ways to raise money to finance your business, people. Three ways. Debt finance (people lend you money), equity finance (you sell some of your business in return for money) or grants. They each have benefits. They each have drawbacks. If you want to raise money through grants, yippee, it’s free money.
Well, no, it’s not free money. It’s not free at all. You have to jump through hoops to get it and when you’ve got it, you have to account for how it’s spent. Sometimes you spend days preparing the paperwork and you get knocked back by some bureaucrat who hasn’t bothered to get to grips with your business and your needs and there’s no right of appeal. What do you want? A medal? Stop your whinging and get on with finding an alternative to fulfil your plans. Jeesh…
The Guardian reports the words of Andrew Carroll (founder of Paperless Receipts, who, and we’ll take this one step at a time, it quotes as saying:
“We went to the Government for our first round of funding…”.
Er, hello? Grants should never be seen as a first round of funding. NEVER. You simply cannot build a business plan for a growth-oriented enterprise that is based on the availability of a grant. If the only way you can get your business moving is with a grant, it’s not a business. I don’t mean that it’s not worth doing. It’s just not a business. Not yet, anyway.
Grants are subject to the whims of politicians and the career ambitions of civil servants. They are used as a power play by the grey sector – that sphere of business that exists somewhere between the public and private sectors, notionally private or at least independent of government but entirely dependent on the flow of public sector capital. NONE OF THIS SHOULD BE NEWS TO YOU. If it is, go back to your lab or your studio and leave the business to the grown-ups.
Andrew Carroll continues:
“… and found the process of doing it laborious and lengthy, to the point that it’s just impossible to actually get [eek split infinitive] anywhere in any reasonable timescale.”
First, see above re. the cost of using grants to finance your business. Second, just what is a reasonable timescale? If the development of your project depends upon the availability of grant funding, you had better build the requisite timescales into your planning. Those timescales are the timescales that an organisation like the TSB works to. That could easily mean a year passing before you get the green light to proceed with a really adventurous project. You, supposedly being in business, might consider that “unreasonable”. In reality, it is neither reasonable nor is it unreasonable. It is what it is. Stop whinging and get on with it.
“I have a number of friends who have had to turn to venture capitalists because they’ve found the TSB process impossible.”
Really, venture capitalists? Surely it’s not that bad?
Are you serious? This guy needs a reality check. If a VC (or a private investor) is prepared to invest in a project, it’s because s/he sees a return. Here’s the rub. You may not yet see the project as a business, but the VC/investor does. Ergo, it is a business. And if somebody is prepared to give you money because they see a return, then that’s the appropriate source of money for you, not the Government. Grants from the likes of the TSB should only ever be for instances where no private sector finance (by which I mean equity finance, since debt finance will not be appropriate at this stage).
Why wouldn’t a VC invest in this situation? Usually because the prospect of a return is too distant or the technical risk is too great. Or maybe because the market is too small and does not justify the investment, in which case there could easily be merit in public sector finance provision. But if this doesn’t apply and you still can’t raise the money, guess what. You’re on your own. Or you would be, were it not for the curious notion that the welfare state should extend to business-building.
Now, you might think that these things are pulled out of the Guardian in isolation, given it’s particular reputation for views on these things. But the Huff Post carried a story this afternoon headlined “British Science Faces ‘Valley of Death’ say MPs”. The piece reviews the publication of a report by the House of Commons Science and Technoloy Committee. The Huff Post summarises the report as saying:
“it was “troubling” that so many British technology start-ups have to be acquired by foreign companies before they can grown into thriving businesses”.
Committee chairman Andrew Miller is reported as saying:
“British entrepreneurs are being badly let down by a lack of access to financial support and a system that often forces them to sell out to private equity investors or larger foreign companies to get ideas off the ground.”
Curse those private equity investors and larger foreign companies with their pots of money and willingness to finance our ideas.
And the TSB is criticised for having a lousy record in backing winners. Good, I say. I WANT the TSB to give money to things that only have a remote chance of success. Because that’s the best way of making sure that the person whose ideas are being financed really doesn’t have a more appropriate option for raising money. So, it’s the best way to guarantee that when there’s a success, it is something that would never have seen the light of the day were it not for the funding.
I have spent a lot of time listening to the Entrepreneurial Thought Leaders podcast series, which is part of the Stanford Technology Ventures Program. (I think that should be “Programme”. Tsk, colonials…). It is very interesting to compare the approaches taken by businesses growing out of Stanford’s enterprise programme and the contrast with our own approach. There are grants available in the USA in order to encourage beneficial research for which no equity finance is yet ready to support. But you would NEVER hear a Stanford graduate describe grant funding as their “first round of funding”. If equity finance is not available, a Stanford entrepreneur might be encouraged to seek finance from a ‘foundation’, that being an organisation set up by philanthropists to support certain ideals. But grant funding would never be the first option. Apart from anything else, life is too short. Especially life in Silicon Valley.
I am no apologist for the Technology Strategy Board. But if you think they are there to be a conventional source of finance because you don’t want to give away any ownership or you’re not prepared to bootstrap or not willing to keep schlepping the finance trail, it’s you that’s wrong, not them.