UK urged to innovate out of a recession with $1.5bn startup fund

The UK government is being urged to create a £1 billion ($1.47 billion) venture capital fund for high-tech startups in a bid to innovate its way out of the economic downturn. In its Attacking The Recession paper, the National Endowment for Science, Technology and the Arts (NESTA) says: “The UK will need new growth sectors to make up for the dynamism that has been lost from financial services.” It said companies in video games, digital effects etc should be invested in during a recession, “to support early-stage innovative firms that are already suffering from the retreat of private venture capital from the sector”. And it calls for public lending to help telcos build out next-generation broadband networks estimated at £15 billion ($22.22 billion).

NESTA acknowledged: “New-to-the-world, invention-based innovation is likely to be the first casualty. Corporate R&D budgets will be cut and the development of new products may be put on hold.” But this is only one kind of innovation, it said, urging companies to adopt a “networked” approach and accommodate greater user-led innovation, like user-generated content. The paper argues great innovations come through crisis-time investments – the internet from nuclear threat, Japan’s post-war economy. In this climate, “lower cost, disruptive business models, which rely, for example, on supply chain innovation or customer self-service, are likely to prosper”, it says.

The paper essentially urges long-term foresight to the government’s short-term economic rescue packages. But for all the its buzzy talk of “networked” companies and tackling a “long tail” of failure, what is basically an extended essay is lacking any kind of detailed proposal, like the duration of the £1 billion venture fund. The Observer goes out on a limb and reports – without attribution, of course – that the government now plans to go ahead with the fund, but it’s likely that comes merely from science and innovation minister Lord Drayson nodding politely as the government is presented with yet another multi-billion-pound begging bowl.

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