Policy Innovation Blog

Vital 6 per cent

Stian Westlake - 03.11.2010

Our research has shown that growth is driven by a small minority of amibitous, innovative companies - exactly the type that have clustered in Silicon Roundabout.

The last two weeks have seen an important and welcome shift in how the UK government talks about the economy. At the heart of it is an emerging understanding that what really matters to growth is a small minority of ambitious, entrepreneurial, innovative companies.

Last week, the Prime Minister committed to “make it easier for new companies and innovations to flourish and create a new economic dynamism”, and today he’s seeing this in practice, visiting high-tech start-ups in London’s Silicon Roundabout.

This is music to our ears. NESTA’s research shows that over the past decade, the six per cent of UK businesses that grew fastest were responsible for 54 per cent of net job creation. (See the chart below.) What’s more, these businesses are disproportionately likely to be innovative, and across the UK, innovative businesses grew on average at twice the rate of less innovative ones.

This is not just a tech story, nor is it a just a small business story. The “vital six per cent” includes both small and large businesses, and includes companies from every sector. But undeniably the innovation that many tech companies embody, and the enterprise that is essential to ambitious small businesses are important factors.

It’s NESTA’s aim to be the champion of these high-growth businesses – and of entrepreneurs who aspire to build them.

We’re doing this in a number of ways:

Investment

Access to finance is a major issue for entrepreneurial businesses. NESTA runs a £50m evergreen venture capital fund. We co-invest with leading private sector investors to back the brightest UK start-ups, and to show how more private capital can be encouraged into the market. Our portfolio companies include the likes of Skimlinks, a leading Silicon Roundabout business recently ranked in the European top 10 by the Guardian’s Tech Media Invest 100.

Incubation

The most dynamic economies have a range of institutions that help new growth businesses thrive. This is not a question of mass-market, government-provided services like Business Links, which too often don’t meet the needs of ambitious entrepreneurs, but rather about the best, private-sector solutions, most often run by entrepreneurs for entrepreneurs. We are founder investors in Seedcamp, Europe’s premier internet accelerator, Design London, the London design incubator chaired by Sir James Dyson, and the European Microelectronics Academy [link to NESTA page on it], backed by Europe’s most successful silicon chip entrepreneurs. We are also carrying out analysis to understand what makes these projects tick, with a major project looking at acceleration now beginning.

Research

We also aim to be experts in what makes innovative growth businesses thrive. We regularly report on the state of the UK VC market and what can be done to help it develop it. We also study how what government does effects growth businesses, such as business-university links and how government procurement can help small businesses. Our Hot Topics events bring together researchers, businesses and investors to discuss emerging technologies with practical uses, such as Serious Games, Big Data, and Personal Manufacturing. And we also look at market structure, how competition and dynamism encourage innovation, and what can be done about them: our next report compares business growth and shrinkage across 11 countries, and future work will look in depth at competition policy and innovation.

Now is the time to focus on growth. So if you are an entrepreneur, and investor, or a policymaker interesting in how the economy will grow – we’d like to hear from you.