Today the BioIndustry Association launched our report on Citizen’s Innovation Funds (CIFs). We believe that CIFs have the potential to raise hundreds of millions of pounds which will help innovative companies – across all sectors – to survive the much discussed “valley of death” to support innovation in the UK and to ensure UK science is developed here.
What have we proposed?
We have proposed that the UK government introduce CIFs, a tax-advantaged investment scheme providing, for the first time, an opportunity for the general public to invest in innovative UK companies. By introducing such a scheme the government would become an enabler, rather than a provider, of much needed investment in innovative companies.
Our CIF concept is based on the hugely successful French fonds communs de placements dans l’innovation (FCPI) scheme and as such it would broadly replicate a scheme which has already been shown to work. To date, the French scheme has raised more than €6 billion from the French public which has been invested in more than 1000 companies.
The introduction of a similar scheme in the UK would capture the crowdfunding mood of the British public and provide a practical way of unlocking their patriotic potential by investing in the innovative businesses which are essential for our nation’s economic future. In our report we estimate that £300 million of investment could be unlocked a year from the scheme creating over 1500 new jobs in the knowledge economy.
Why are CIFs needed?
Many innovative companies in the UK face an ongoing challenge of identifying where their next funding round will come from. These companies are often sold at the earliest opportunity, rarely maximising the potential for development and denying investors the best return on their capital. This leaves commentators bemoaning the lack of a “British Google”, a “British Apple” or a “British Amgen”.
There are numerous government reports which highlight the value of innovative sectors to UK growth and we are fortunate to be world leaders in a number of sectors. However, lack of capital is having an effect on the number of products and technologies that are being commercialised here. In biosciences, for example, there are examples of companies being forced to relocate due to lack of funding. We are losing British science overseas and as a result the UK does not reap the benefits in terms of employment and tax revenues. Clearly when this is happening and we are unable to translate our world leading science due to lack of funds the government needs to get involved.
In December 2011, the UK government published an Innovation and Research Strategy for Growth and a Strategy for UK Life Sciences. Both documents identified the challenges of translating research into commercial application, particularly due to a lack of funding – the so-called “valley of death”.
The BIA has spoken to government, representative of other innovative sectors, banks, venture capital fund managers and other stakeholders about CIFs and met with a uniformly positive response from all the interested parties.
We feel that the report we have published today answers their questions and we look forward to working with them to bring this proposal to fruition. Most new legislative proposals presented to government are modelled on estimates; however our CIF proposal is based on more than 10 years of data from the French FCPI scheme.
Did the FCPI scheme work?
The data from the French scheme suggests that the FCPI funds have been good news for innovative companies in France. Compared to their non-FCPI-backed peers, FCPI-backed companies:
- file three times as many patent applications
- show faster growth in revenues
- increase exports quicker
- employ more people
Not only did the FCPI scheme help support a new generation of innovative French companies but it also engaged the population with those companies and, with the tax advantages taken into account, FCPIs have produced positive returns for investors.
How would the CIF scheme work?
The BIA has proposed that CIFs would be easily available through high street banks, Independent Financial Advisors or other regulated distributors and represent an opportunity for the general public to engage with the innovation economy. Investors would be able to invest up to £15,000 each year and would receive an income tax break upon investment and a capital gains tax break on any returns.
The CIF funds would be run by FSA-licensed fund managers, who would invest at least 60% of the fund in innovative companies and the remaining 40% freely, e.g. in bonds, stocks etc. We have proposed that CIF investors must hold their investment for five years (except in some specified circumstances e.g. death) for the tax break to remain valid and to ensure the right balance is met between the investor and the need to support companies.
The BIA is not asking government to give a hand out to innovative companies. We are asking them to give innovative companies a hand up by introducing Citizens’ Innovation Funds. This will enable the crowdfunding of a new generation of companies and speed the commercialisation of their innovative products and services.