This weekend I was on a trip to Monterey, and we wanted to buy some sandwiches for a picnic lunch. We stopped at a supermarket where they have a deli counter which makes sandwiches, and thus resolved our hunger issue. However, I always find ordering sandwiches at a deli slightly unsatisfactory. In my mind the bread-to-filling ratio and the proportions of the fillings are critical to sandwich enjoyment. For this reason I have a general preference for pre-packed sandwiches. They may not be as good as a really good deli sandwich, but at least you know what you are getting - they usualy meet my expectations. There few things in life as disappointing as finding your deli sandwich is all mustard and precious little ham... In the end the sandwich was great but today in the canteen while I was making my own sandwich I had feeling a contentment, safe in the knowledge that my sandwich it would be perfect. It was a delicious sandwich, and cost slightly more then the one made for me in the deli even though I provided the labour for its manufacture free of charge. It made me realise that it's all about choice. At most deli counters you pay per sandwich or per filling, so the business have an incentive to be mean with the more expensive fillings. In the canteen you pay accoding to the finished weight of your lunch, so you can have as much filling as you like, you just pay for it. I wonder if there is space in the (fairly crowded) deli sandwich market in the UK for a business model where you pay by weight, either making your own or just instructing your server... I have no real interest in the sandwich business although I am sure it is fascinating and lucrative, but this seemed like a good example to share of how the way I look at almost everything around me is changing because of my experiences in this programme.
While consuming the aforementioned sandwich I was reading a report entitled "Benchmarking UK Venture Capital to the US and Israel" (available here). Unsurprisingly the UK comes out well below either (when looking at venture capital invested as a proportion of GDP) which could be seen as depressing reading. One statement attempting to garner more governmental support fo the VCs in the UK really jumped out at me "...academics have shown that VC backed firms which receive too little money perform much worse than innovative companies that follow a bootstrapping strategy and try to develop their business model without VC involvement". A study is cited and I have been unable to find a copy online to check out the methodology, but it must be a challenge to establish causality. After all, another way of describing "VC backed firms which receive too little money" might be "VC firms that fail because they enter into bad funding agreements, spend too much or can't make enough progress to raise more funds", and looking at it in that way, surely by definition another group of firms will do better than a group that fail? More credible is the documented analysis of factors that drive VC activity within a country:
By driving entrepreneurialism then we can drive VC activity? I'm in the right place with the Saltire Foundation then!
This correlates with something else I keep hearing about the UK market which is that VCs have money, but can't find the right opportunities to invest in. In other words, the base level of entrepreneurial activity is not utilising the maximum capacity of the VC industry that we already have.
Goverment spend (direct, grants or through tax credits) can certainly drive R&D too, although I'm not sure it is so easy for a government to drive market cap.
There seems to be every reason to expect that government policy can have a significant impact on VC activity however.
People in the USA are often astonished about how much state involvement there is in business in the UK. The idea of grants and co-investment funds seems to send shudders through their red-white and blue capitalist bodies. However, the model for the commercial VC movement of which they are so proud came from US government schemes in the 1950's such as Small Business Investment Companies, and the Advanced Technology Program funding significant technological research into commercialisation looks very much like seed money. These schemes sound pretty similar to some of the things we are doing in the UK too, so next time someone from the USA suggests government involvement is bizarre, I shall be sure to point out the success it has brought here, and that we are merely a few years behind!
Every business is hugely influenced by the political, social and legislative environment in which it exists. I'm starting to believe that rather than focussing on business and leaving politics to the politicians, it is incumbent upon all of us to play a role in shaping that environment. That's another change of mindset for me....