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COVID-19 and financial slowdown won’t stop European Innovation

Date: 11 September 2020

The European innovation sector is showing signs of strong growth, despite business interruption due to COVID-19. Sustained investment from the private sector and an increase in funding from the UK government and European Commission mean we see good growth in the start-up and research & development sectors.


UK Government steps up Research & Development investment


Record amounts of funding for research and development (R&D) is pledged by the UK government.[1]


The March 2020 budget pledged to increase public R&D investment from £11.4 billion to £22 billion per year by 2024‑25. The planned increase will take direct support for R&D to 0.8 per cent of GDP placing the UK ahead of the USA, Japan, France and China among OECD nations.


These funds set aside at least £800 million for a new Advanced Projects Research Agency to invest in “high-risk, high-reward” science, modelled on the US ‘Arpa’ of the 1960s.


Around £400 million of the new funding will support world-leading research, infrastructure and equipment at institutes and universities across the UK.[2] £1.4 billion will also be allocated to the Animal and Plant Health Agency’s Surrey laboratory and headquarters. The agency specialises in researching diseases that effect animals and plants and sometimes humans too.[3]


The department for Business, Energy and Industrial Strategy (BEIS) has announced an allocation of £8.45 billion for UK Research & Innovation which supports and funds scientific research in universities and other institutions. The BEIS’s funding is also allocated to key areas of research like climate science, atomic energy, Space and quantum mathematics.[4]


UK support for technology transfer


Funding for R&D would be lost without technology transfer – the vital transition made by university research projects to become commercially viable businesses. This is an exceptionally important process; if done well, the UK can fully realise the potential of its world-leading academic research.


Research England has announced two grants totalling £1.5 million to support two schemes that work to smooth this transition. The first scheme will support the TenU network, a group of Technology Transfer Offices at ten universities around the UK and world (including Cambridge (UK), Columbia (USA), Edinburgh (UK), Imperial College London (UK), Leuven (Belgium) among others).[5]


The second scheme will support a new Policy Evidence Unit for University Commercialisation and Innovation (UCI). This new unit’s task will be to smooth the technology transfer journey through policy changes and improvements to data management and reporting.


European innovation support


More optimism for research and development can be found in the brand new accelerator pilot project from the European Innovation Council.[6] Participating companies and research projects can get a range of support, like advice from subject-area experts, support in conceptualising and developing business ideas, through to as much as €15 million of funding.


The new project is aimed to support highly innovative and highly risky companies from their conception to international market access. Recently, 64 start-ups were awarded funding totalling €307 million for Green Deal projects under the scheme.[7]


Venture capital investment in start-ups


Figures from Crunchbase show that European start-ups are enjoying sustained venture capital funding despite a slight drop in the largest single rounds.


Single funding rounds of over $100 million took a 52% hit in the second quarter of 2020. This drop in very large funding deals has affected the very top of the market. The numbers of start-ups reaching unicorn status (start-ups valued at $1 billion), as well as exits, are down. Whether this is a helpful metric is debatable. Unicorns are relatively rare beasts and there is concern in venture capital circles that companies focus on unsustainable growth to reach this coveted status. Nevertheless, 40 companies have reached unicorn status so far this year globally (2 from the UK, or 7 if we look year-on-year)[8], and there has been significant activity in unicorn exits by Initial Public Offering (IPO) and acquisitions.


If we set these aside, we see that in funding rounds below $100 million, the drop is a more modest 9%. Beauhurst estimates there are around 1,300 small companies in the UK that will need to raise funding in the next 1-2 years. These companies will take heart from the fact that the market is still very active.


Technology sector is heading for another high


Focussing yet further on the technology sector, we see that investment in tech has remained very strong. According to data available so far, funding in 2020 has dropped barely 2% compared to the same period in 2019[9], which was itself a record year[10]. 2019 saw a 44% increase in VC investment in Europe compared with 2018.[11]



Source: Tech Nation


Many commentators anticipate a natural decline after a record year in 2019. Yet total funding invested across all sectors is actually up from 2018; $1 billion more was invested in the first half of 2020 than for the same period two years ago.


We can also take lessons from the experience of the financial crash of 2008. While venture capital took a hit after the sub-prime mortgage crisis, it managed to bounce back within just 8 financial quarters.[12]


Despite small crashes in mid-March 2020, the NASDAQ and DAX indexes for example have both since bounced back after less than 2 quarters.


Optimism despite gloomy outlook


So far, 2020 has seen seismic changes to our daily lives, an economic slowdown and we have Brexit on the horizon. This outlook may rattle confidence, however there is still cause for optimism:


  • The UK government and EU Commission are pumping money into supporting emerging technologies and are committed to supporting university commercialisation and entrepreneurship in the region.
  • The venture capital market is continuing to deliver funding to smaller companies in lower-value rounds.
  • Europe and the UK remain key markets for investors and companies who are engaging in world-leading research.

[10] see [8] above.