Posted Thursday 21st May 2015 by Andy Jarrett
Innovating the Jersey Innovation Fund
This year’s Enterprise Week events in Jersey were designed to spur business leaders and practitioners across the island to join in the conversation about what the future holds and how to shape it. This blog is my take on the debate and the inspiring conversations that have taken place during this fantastic series of events, especially following Friday’s event ‘The Brave New World of Business Funding’.
The panel at this event included members of the Tourism Development Fund, venture capitalists/investors, banks, lending companies and entrepreneurs. Its focus was the mechanism of funding that startups and new ventures need to get going.
Having worked with several startups to help them gain access to funding, I was extremely interested to learn what the typical timescales were. The example given was a request for a £500k loan or investment, based on a comprehensive proposal. The private lenders and banks suggested that for a well researched proposal, complete with all the relevant documentation and also fit in terms of personality with the applicant, the optimistic timeline for funding access was in the region of up to a week, it is worth noting these loans will be based on the usual forms of security. The full-time venture capitalists estimated approximately four to six weeks, the length of time determined by their desire to build relationships and confidence in the executive teams rather than access to money per se.
Which got me thinking – given the need for speed in accessing funding, and the important role for the Jersey Innovation fund in supporting business growth, how does how JIF compare and what can be done to accelerate this process, which has in the past reportedly taken up to six months?
It is worth noting that there are complexities in a JIF application:
- The JIF panel do not actually control a fund in the traditional sense, they in effect make a recommendation to the government to loan the money on an unsecured basis. The unsecured nature is a significant differentiator.
- Given the loan is unsecured the timelines between the alternative options should be viewed in that context.
- Unlike other VC models where applicants are coached before they present to investors, applicants to JIF have different levels of experience meaning that some require a number of iterations and take longer.
- Perhaps most importantly though, the JIF panel are not in control of the complete process, far from it, just one example is that each loan requires its own bespoke contract between the government and the applicant, this takes time.
- The processes the JIF panel adhere to include amongst other things are economic impact assessment which is provided to other departments who follow their own processes.
- So unlike a VC or finance company the JIF process has many stakeholders and interconnected processes which do not always match with the pace and urgency of the digital world.
I reflect then that whilst it appears that the JIF process is longer, given a like for like applicant the JIF board strives to work in similar timeframes to VC’s. However the process as a whole, with the hand off to various department which adds time to the overall process and needs attention.
Given the need for speed and also the funding gap at the start up/seed level what options can be considered? I asked the panel at ‘The Brave New World of Business Funding’ event the following:
“Would a Jersey SEIS (Seed Enterprise Investment Scheme), which underwrites investment into start-ups with tax credits for example, generate more local support from Angel, Seed and High-Net-Worth investors and stimulate the local economy with business and innovation?”
The answer was a resounding ‘yes’, with the general sense that investors really did want to invest in the local community, and that something like this would make a significant difference.
Tech businesses in need of funding work better with smart money and the ability to leverage contacts, so timing is critical to maintain momentum and, in some cases, first mover advantage. As constructed, the JIF fund can be part of this solution but is far from being the total answer – it was not constructed to be this and operates within the constraints and governance that are imposed.
My conclusion is that the funding ecosystem in Jersey needs further evolution with vehicles, especially in seed and start up space that:
- Releases capital to businesses in a matter of weeks
- Leverages people and businesses with industry expertise to deliver smart money
- Generating real stimulus and sense of community
- Crowd funding solutions and / or a platforms to match investors and ideas
- Jersey SEIS or similar to stimulate investment
- JIF as a blend of finance support
- Enable and attract entrepreneurs and provide support, in addition to money to help them succeed
The JIF board and fund could evolve to support a Jersey SEIS scheme, in this I envisage they would evaluate the applications, critically in this model thereafter there would be no need for other intervention. Part of the JIF fund would be set aside for the JIF board to manage and used to mitigate any tax credits for failed businesses. This would facilitate faster investment through local investors with smart money, delivering on points one, two and three above, whilst continuing with the unsecured JIF loan where appropriate.
The knock on effect of this has the potential to provide Jersey with a USP beyond other tech locations where access to smart funding is available as well as unsecured loans, which would act as a catalyst to inward investment of businesses. It would generate GVA, jobs and support the creation of new tech startups.
This sort of approach would leverage our existing strengths, including our vibrant finance community, while also helping us to diversify - a winning combination that we are all hoping for. Furthermore, as we have seen FinTech emerging as an evolution of the traditional finance sector, this approach would also highlight opportunities.
Digital Jersey will be publishing a paper on SEISs and what benefit they could have to Jersey later this week.