Entrepreneurial Profile of the
UK: Analysis and Policy
Recommendations
Global Entrepreneurship and Development Index Launch
1 March 2011
Professor Saul Estrin, London School of Economics
Professor Michael Hay, London Business School
Carol Gaddum, London School of Economics
Notes for presentation: not to be quoted without the permission of the authors
Outline of Presentation
The UK’s Position in the GEDI
•
Strengths in the Entrepreneurial Environment
•
Weaknesses in the Entrepreneurial Environment
Weaknesses and Policy Responses
•
Finance
•
Innovation
•
Culture
Framework for Policy Analysis
Policy Recommendation
Not to be quoted without the permission of the authors
2
The UK’s Position in the GEDI
• The UK ranks 14th in the GEDI with
0.56 points
• The UK’s overall entrepreneurial
performance is perfectly in line with
the development predicted by the
trend line
• It outperforms the trend line in terms
of entrepreneurial attitudes and
activity
• Here the difference is quite significant
in the case of entrepreneurial activity
(13th) and only marginal for
entrepreneurial attitudes (11th)
• By contrast the UK is positioned
significantly below implied level of
development in terms of
entrepreneurial aspirations (21st)
Not to be quoted without the permission of the authors
3
Strengths in the Entrepreneurial
Environment
The GEDI points to strengths in three
key areas:
•Opportunity perception: A high
percentage of the population is able to
identify viable opportunities to start a
business
•Entrepreneurial Activity: The UK
consistently ranks in the top 33 percent
of countries e.g. quality of human
resources, new products, new
technologies
•Competition: Entrepreneurs in the UK
are primarily positioned in industries
with few competitor offering the same
product
United Kingdom
33% percentile
Not to be quoted without the permission of the authors
67% percentile
4
Weaknesses in the
Entrepreneurial Environment
GEDI points to three key areas of
deficiency:
•Lack of enterprise culture, reflected
in a weak performance among most of
the individual attitude variables
•A shortage in product and technology
innovation, which in turn limits
companies’ abilities to grow and expand
internationally
•A substantial problem in the provision
of informal venture capital
United Kingdom
33% percentile
Not to be quoted without the permission of the authors
67% percentile
5
Analysis of the Weaknesses in the
Entrepreneurial Environment
FINANCE
INNOVATION
BIG
ENTREPRENEURIAL
SOCIETY
CULTURE
Not to be quoted without the permission of the authors
6
Finance – Market Trends
Traditional Strengths
Market saturation and consolidation
•
UK hosts one of most developed and sophisticated angel markets in Europe
•
Evolved from fragmented system to co-ordinated network of angel groups
•
Market shows signs of stagnation whereas the French market is growing rapidly
Increasing investment activity
•
41% increase in the number of investments per year since 2000/01
•
Total deal value has jumped from £49.6m to £123.2m (+148%) since 2000/01
Participation in co-investment schemes
•
Angels involved in 45% to 59% of public-private co-investment deals
Disconnect between angels and venture capitalists
•
Disadvantageous design of EIS and failure to protect angels against dilution
Challenges
Deal flow
•
Lack of awareness of investment opportunities impedes inflow of new angel investors
•
Shortcomings in training and education of novice and inexperienced angels
•
Lack of investment readiness continues to be a factor limiting the efficiency of the angel market
•
Need for infrastructure enabling investors and entrepreneurs to more easily locate one another
Exit Opportunities
•
Lack of opportunities due to disconnect, depressed IPO market and lock-in periods
Source: Mason et al. (2010); BBAA (2010) Not to be quoted without the permission of the authors
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Finance - Policies
Deal Flow
Coinvestment
among
Angels
Business Angel Networks:
To reduce information inefficiencies in
the market so that investors seeking to
invest and entrepreneurs seeking
finance can more easily locate one
another
Fiscal Incentives:
To increase the number of business
angels by improving the risk reward ratio
Co-investment Vehicles:
Government-financed venture capital
funds, which leverage investments
made by business angels to increase
deal size and allow follow-on
investments
Securities Legislation:
Changes to securities legislation that
prevented entrepreneurs from circulating
business plans
Capacity-building for Entrepreneurs:
Training for entrepreneurs to improve
their investment readiness
Capacity-Building for investors:
Training for investors to increase their
competence in making investments
Dilution
Exit
Source: Mason (2009)
Not to be quoted without the permission of the authors
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Innovation – Market Trends
Traditional
Strengths
Strong innovation performance in international comparison
•
EIS (2009) ranks the UK 4th in terms of innovation performance behind
Sweden, Finland and Germany
•
GCI 2009/10 ranks the UK 15th in innovation performance
•
NESTA Innovation Index (2009) indicates that UK invests more in innovation
than traditional R&D measures suggest
Challenges
Low business R&D intensity
•
Industrial structure with a high proportion of output generated in services
•
Limited range of innovative sectors (many of these contract or move abroad)
•
New developing sectors face difficulties in growing in the global innovation economy
Problems in translating R&D into commercially viable products
•
Risk capital
•
Business-academia relationships
•
IP framework
•
“IP to license” model where IP is sold to foreign investors or SMEs are acquired by multinationals
•
Entrepreneurial spirit and fear of failure
Lack of future skills needs
•
Management skills
•
Technical skills (STEM graduates)
Source: Miles and Daniels (2009)
Not to be quoted without the permission of the authors
9
Innovation – Policies
Demanding Innovation
Innovation
Demand
Small Business Research Initiative
Innovation Platforms
Better Regulation Initiative
Research Base
Lack of
Scale
Managerial
&
Technical
Skills
Supporting Business
Innovation
Business Links
R&D Grants
R&D Tax Credits
Innovation Platforms
Knowledge -Transfer Partnerships
Innovation Voucher
Investigation into Service Innovation
Review of IP Legislation
Innovation in Public Services
Innovative People
National Skills Strategy
Train to Gain
Coaching for High Growth
STEM Skills Promotion
Risk
Capital
Innovative Places
Source: Innovation Nation (2008)
Innovation Platforms
Science Cities
Not to be quoted without the permission of the authors
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Culture – Role
Culture shapes what
individuals perceive as
opportunities and
therefore entrepreneurial
alertness is linked to
capabilities of judgment,
creativity, and
interpretation
Culture matters at the
national, regional, firm,
and individual level
Source: Huggins & Williams (2009)
Culture plays a central
role in cultivating
entrepreneurship
CULTURE
The culture of European
societies has been identified
as one of the key reasons
for the gap in Europe's
entrepreneurial activity
compared with the US
Not to be quoted without the permission of the authors
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Culture – Market Trends
Fear of failure
•
Lower fear of failure than France and Germany, but high compared to Scandinavian
countries and the US
•
43% of people in the UK compared with 19% in the US believe a new business should
not be created if there is a risk that it might fail
•
Fear of failure has been increasing in the UK
Challenges
Misconceptions about risks
•
Society does not sufficiently celebrate returns from enterprise and overstates the
likelihood and consequences of failure
•
Risk aversion is based on misconceptions about the risks inherent in starting a business
•
People underestimate the potential income from running a business and overestimate
the difficulty of obtaining finance
Celebration of Success
•
Historically embedded phenomenon and partly attributable to the evolution of bankruptcy
law in the UK
•
Until the 19th century bankruptcy was considered a crime and a bankrupt in the old laws
was considered an offender
•
Although public attitudes and legal consequences changed considerably, stigma of
bankruptcy remained
Not to be quoted without the permission of the authors
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Culture – Policies
Fear of
Failure
Absence of
Role
Models
Building
Entrepreneurial
Capacity
Conceptions
about Risks
Legislation:
Enterprise Act of 2002 announced
major changes to the UK
competition and insolvency law
Awareness Raising Campaigns:
For instance Enterprising Britain, a
competition that recognises and rewards
local organisations that have worked
together to drive the social and
economic transformation of a place
School-level Education:
Schools play a key role in
developing attitudes towards
careers and providing enterprise
education as part of the curriculum
can turn attitudes into action
University-level Education:
National Council for Graduate
Entrepreneurship to promote a culture of
entrepreneurship within higher
education through research, education,
and facilitation
Stigma of
Bankruptcy
Source: Huggins & Williams (2009)
Not to be quoted without the permission of the authors
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Putting it all together
Finance
Business Angel
Networks
FUNDING
Business angel
AWARENESS
COMPETENCE
DILUTION
TAX INCENTIVES
Venture capitalist
High net worth individual
CoInvestment
scheme
INVESTMENT
READINESS
Entrepreneur
MATCHING
AWARENESS
COMPETENCE
Not to be quoted without the permission of the authors
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Putting it all together
Innovation
AWARENESS
IP OWNERSHIP
MATCHING
FINANCE
SCALE
DEMAND
IP OWNERSHIP
MATCHING
Not to be quoted without the permission of the authors
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Putting it all together
Culture
School
Children
Graduates
Society
FEAR OF FAILURE
LEGISLATION
MISCONCEPTIONS
ABSENCE OF ROLE MODELS
Not to be quoted without the permission of the authors
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Framework for Policy Analysis
School
Children
Business Angel
Networks
Graduates
FUNDING
Business angel
Venture capitalist
High net worth
individual
AWARENESS
COMPETENCE
DILUTION
TAX INCENTIVES
CoInvestment
scheme
Society
FEAR OF FAILURE
LEGISLATION
MISCONCEPTIONS
ABSENCE OF ROLE MODELS
INVESTMENT
READINESS
Entrepreneur
MATCHING
IP OWNERSHIP
MATCHING
AWARENESS
COMPETENCE
Not to be quoted without the permission of the authors
AWARENESS
IP OWNERSHIP
MATCHING
FINANCE
SCALE
DEMAND
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Entrepreneurial Policy
Recommendation
Legislation
IP - Protection
Bankruptcy Law
Protection against Dilution
Co-investment Schemes
Tax Incentives
BIG
ENTREPRENEURIAL
SOCIETY
Education
Networking
Investment Readiness Training
Competence of Business Angels
Managerial Skills
Innovation Skills
Technical Skills
Socialising Skills
between entrepreneurs and
•Angels
•Innovation Partners & Universities
•Society, Graduates & School Children
Not to be quoted without the permission of the authors
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