The introduction of a completely new product must be approved, tested and evaluated in a pilot before going live at scale.
Innovate UK as a public sector organisation has done just that before launching its innovation loans programme.
The innovation loan pilot was initially announced in the 2015 spending review. Innovate UK gained approval to launch a £50 million pilot innovation loans programme in November 2017, later extended with a further £25 million.
Alongside the business cases for approval and external reviews of structures and processes, an important input to the decision to progress from a pilot was an independent interim evaluation.
The final report
The final report on innovation loans pilot (follow on interim evaluation) has been published and coincides with the announcement of a new £150 million innovation loans programme for the next three years.
Innovate UK commissioned SQW, working with IFF Research and Middlesex University, to conduct an initial and then a follow-on interim evaluation of the pilot programme.
This found the programme to be a success.
The study found that the programme is filling a vacuum in the innovative funding landscape and playing a critical role in firms’ commercialisation journeys, while complementing existing finance offerings.
Help SMEs scale up and grow
Innovate UK committed approximately £75 million to 120 businesses in the extended pilot.
These loans were for innovation projects to help small and medium-sized enterprises (SMEs) scale up and grow, focusing on late-stage research and development (R&D) projects with a clear path to commercialisation.
The first Innovation Loans pilot competition launched in 2017 with a further seven competitions between then and 2019.
Due to the structure of innovation loans, the first loan drawdowns began in 2018 and continued through 2021.
The evaluation was based on a framework that was developed before the pilot was launched, so that we could judge whether the pilot had been a success.
SQW was asked to evaluate the loan programme’s management and delivery.
They were also asked to look at the early indicators that the loans have resulted in extra results and impacts for firms.
What did the interim evaluation report?
The findings of the evaluation are very positive and provide evidence of strong progress since the previous interim evaluation in 2019.
The demand for innovation loans has risen steadily throughout the competition rounds, more than tripling between Competition 1 and Competition 7 (36 to 107 applications).
One of the key benefits reported is that the loan finance is largely additional.
Few of the beneficiaries would have been able to access similar funding from elsewhere. Some of our unsuccessful applicants also reported this as they struggled to secure funding elsewhere.
Key finance product
The innovation loans programme is regarded as a key finance product in the market.
It has allowed businesses that were successful in obtaining a loan to pursue new product development and commercialisation activities.
Additionally, the funding supported investment in research and commercial jobs and demonstrated evidence of increasing sales.
Businesses talked about how they were able to develop staff skills (96%) and innovation capacity (88%), as well as:
- enabling people to focus on R&D-related activities
- investing in new R&D-related equipment
- embarking on more risky projects.
This is thanks to Innovate UK’s understanding of innovation risk.
Investment and commercially ready
As a result of the programme, the majority of businesses are more:
- investment ready: they are willing or prepared to overcome equity aversion and have overcome their inability to invest and presentational failings
- commercially ready: they are willing or prepared to bring new products, services or processes to market.
Analysis of data from the pilot shows that after adjusting for additionality and scaling up the results to an ‘effective’ population of 95 businesses, SQW estimates that innovation loans have supported:
- 346 additional jobs to date (July 2021)
- £16.9 million in additional annual turnover to date
- £44.7 million (cumulative) additional turnover since innovation loans were launched.
The results are particularly encouraging given the relatively short time that has elapsed since businesses have been awarded and drawn down their innovation loans.
This success has come despite the disruption to businesses and the economy from coronavirus (COVID-19).
SQW created an infographic to summarise the highlights of the interim evaluation report.
Innovation Loans competitions continued into 2021 as a pilot.
The Innovation Continuity Loans competitions under the government support package for COVID-19 made further support available to innovative SMEs in the face of the economic difficulties caused by the pandemic.
In total, Innovate UK has committed £163 million through 208 loans.
We have summarised the loans activity and results so far in an infographic.
Continuation of the programme
So, what will 2022 mean for innovation loans?
The good news is that £150 million has been approved for continuation of the innovation loans programme over three years and it is no longer a pilot.
We have just launched our first round of the Innovation Loans Future Economy competition.
We want to continue to support our Innovate UK award holders and access that wider pool of innovative businesses.
This includes those underrepresented groups and regions that are currently unaware of Innovate UK support.
Measure the economic impact
We will continue to evaluate the programme over time, to look at what improvements can be made and to measure the economic impact of the programme.
The current evaluation indicates that the innovation loans programme is making good progress towards delivering economic impacts.
The loans have been essential for commercialisation of new or improved ideas, and these companies are experiencing positive effects on employment, sales and turnover.
You can go to the Innovation Loans Future Economy competition page.
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Top image: Credit: nd3000, iStock via Getty Images