21
Examination of witnesses
Aftab Mathur and Patrick Nédellec.
Q129 The Chair: Welcome to the second session today of the Science and Technology Committee. We have Dr Mathur from Singapore, who is joining us remotely; he is director of investment at Temasek. We also have Dr Patrick Nédellec, the science and technology counsellor from the French embassy. You are both very welcome.
As you know, we are interested in the problem of how to finance and scale UK science and technology and what our Government should do to encourage investment in science and technology companies in the UK. We are really interested in international comparisons, and we are interested of course in your experiences from Singapore and France. By way of an opening statement, could you each set out what your role is and what your organisation does to serve your country’s innovation system?
Aftab Mathur: Thank you for having me. By way of background, I have been at Temasek for 11 years and I am a managing director leading two groups. I lead the innovation investments group and the emerging technologies investments group. We operate across three key pillars. We invest directly into technology start-ups globally, including in Europe and the US, Israel, Latin America and Asia too. We also invest in VC and growth funds; we are one of the largest investors globally into funds. The UK has been a big focus for us, and we have invested in a number of venture capital funds in the UK as well, in addition to the US, Israel, south-east Asia, India and China.
The third pillar is that we build platforms in areas where we think there are gaps in the market, and we have dedicated strategies to build certain product vehicles. We have set up a whole venture debt platform and growth debt platforms, and we have set up venture and growth secondaries platforms to address market gaps where we think that there is an opportunity for us to deploy capital at scale. That is the quick background on what we do. We are a global investor; we invest across geographies and sectors, and we have a multibillion dollar portfolio.
The Chair: Thank you—we will of course have a lot more questions for you. Dr Nédellec, when you make your introductory remarks, given that you have seen a lot of international embassies and different innovation systems during your time in different countries, perhaps you could comment on what you see as the unique strengths and weaknesses that the UK has.
Patrick Nédellec: Thank you for allowing me to address you today. As you mention, I am the scientific counsellor at the French embassy right now, but I am a scientist by background. I am a molecular biologist, trained at McGill University in Canada, and I did my research on muscular dystrophy over 10 years at Hôpital Pitié-Salpétrière. So I am truly a scientist who has moved not to the business sector but to another sector that is very important—administration of research. That is another point that is crucial for the development of higher education and research for the future.
I moved to the ministry of foreign affairs and was appointed scientific attaché in Denmark and China. Before mentioning this quite different sector in terms of research and development, I shall just tell you that before holding that position I was the delegate for European and international policy at the ministry of higher education and research, working directly with the general director on higher education and research and especially with the cabinet of the ministry for evolving new policy for international projection of higher education and research. Before holding that position, I was the international and European policy adviser for one of the largest European research-performing organisations in France, CNRS.
I have enjoyed working in Denmark and China. It was good to start with that, because Denmark is quite a small and very clean country in terms of atmosphere and pollution—and then I moved to a huge country that is fast-growing with a lot of pollution. Those contrasts gave me some feedback on how they address those questions.
Denmark, which is very interesting, is a small country and very interested in developing research, of course. What I was interested in was that, in developing higher education and especially R&D, it had used experts more than 25 years ago on a huge commission to decide what would be the key technology that Denmark should provide in future. It was clear that, being a very interesting but small country, it would not be able to address all the major issues for the future. It was really interesting to see how strongly focused the development of technology is in Denmark. As you know, Denmark is today among the leading countries in green technologies and biotechnologies. It has addressed ecosystems such as clusters—I am thinking about the Horizon clusters on biotechnology, close to Sweden—and other infrastructure that is organised through universities, such as DTU, on AI. Those are quite interesting developments. The really interesting thing about Denmark is how it has focused highly on key technologies.
China was completely different. I was there from 2007 to 2013, roughly at the end of the Deng Xiaoping philosophy—the opening-up policies. The new central government of Xi Jinping has completely changed the game. It is not so open anymore or so easy for foreign investors to work with. The reason is mainly because they have decided to create their own sovereignty in terms of technology developments, putting in place policies that make it much more difficult for foreign investors or even academics to develop co-operation with China. However, during the time of the opening-up policy they invested substantial amounts of money to develop R&D activities. We were talking, decades ago, about a more than 10% to 20% increase in R&D budgets. Over several decades, it was a fantastic transformation that the country witnessed. I was in China during this late period and have seen university developments coming from almost nothing. I was visiting huge laboratories that were well equipped with a lot of students. But one thing was missing, because the development was so fast, which is that it is easy to get students but much more difficult to get senior professors to train them, so they faced a difficult situation where the students were not so well trained during this period.
It is not the case anymore because China invested a lot in recruitment—I would say that there were foreign high-level scientists, but mainly it was to recruit Chinese scientists who went abroad, especially from the United States, to run huge departments in China. So it is strong policy with some kind of nationalism and a perspective in saying, “You are Chinese; you should help the Chinese to continue growing in the future”. I met a lot of these Chinese based in the United States who were thinking to move to China to run these administrations.
What is the situation now? During those two or three decades of strong investment, there was more than 10% or 20% growth every year. This does not occur anymore because the Chinese have succeeded in transforming a large part of their population from poverty to middle-class positions, which today are making strong demands in social and security matters, which is costing a lot today for the Chinese Government. They are having what we have here—I would not say modern society but late-stage society, whereby we have to discriminate between investments for the future of the country and those for the well-being of our citizens. So it is a crucial situation that China is witnessing. It is an interesting situation.
The Chair: Thank you. We will obviously be asking you a lot more questions about France in the session.
Q130 Baroness Northover: This question is to Mr Mathur about Temasek and its need to balance the requirement to invest for long-term returns along with the need to support Singaporean companies, which of course is something that sovereign wealth funds in many instances do. They decide how they are going to position themselves in terms of their support for companies within countries and the long-term returns. I wondered how this is balanced.
Then, on the United Kingdom, we see a real challenge with institutional investors in the UK not investing in UK equities. How do you balance that? Is there something that we can learn from it? In terms of where the investment goes, there is the challenge of a lack of scale-up capital in the United Kingdom. It seems that once investment has reached, say, £50 million or so, domestic capital dries up and companies can move abroad. Is that where Temasek has a role? Does it fund that stage in order to make sure that the companies stay in Singapore?
Aftab Mathur: There are a couple of questions there. Maybe I will start with the first part, which is, I guess on the journey of Temasek. Since Temasek started in 1974, it was primarily a Singapore holding company with everything in Singapore. It was only in the 2000s when we stepped out and became more of an emerging Asian player. Finally, 2010 was when we embarked outside our strategy to be a global investor by the end of 2020. That is when we started expanding into developed markets in Europe and the US. So it has been a journey since 1974, going from being 100% Singapore to bringing that down to where we are today.
Singapore is still our key anchor market. As you mentioned, 27% of our portfolio is based here and we have significant investments in the likes of DBS Bank and Singapore Airlines, as well as privately held companies like PSA, which is the port, or Singapore Power, which is the power grid of Singapore. We hold a lot of these large assets. But, at the same time, these Singapore companies have been key stalwarts for us in driving sustainable returns, as well as the steady dividends that they give us, and that has provided us with the capital to go out there, do the significant investments outside Singapore and build up that portfolio.
We work closely with these portfolio companies, given how small Singapore is, to help drive that internationalisation. If you look at our portfolio, the underlying exposure goes from 27% in Singapore to 60% in developed markets because of the growth that has happened over the last couple of decades.
In terms specifically of the long term and the early-stage spaces that we play in, there are a couple of different parts to it. For us, we go in early with a view that we can help these companies scale and grow all the way from as early as series A and B, and we can hold on to these investments until they go public and even post public. We hold on to these companies as they emerge into large public markets players. We have done that in Singapore and in China with Alibaba. We have even done that in Europe with companies like Ardian. The whole idea is to come in early and be a long-term partner and capital solutions provider for these companies as they grow and scale, even here in south-east Asia. We have done that here in Singapore as well as the broader south-east Asia region.
We do it in two parts. We catalyse the really early stages, series A and B, through the VC funds. Because of the number of companies and our own bandwidth we work with, we have seeded and anchored about five or six VC funds here in Singapore that have gone on to do a lot of the early-stage series A and B bets. Then, we as Temasek, come in once these companies scale and grow to series C and beyond. We are looking at it through a purely financial commercial lens in everything that we do, but we bifurcate between coming in too early, where the cheque sizes are too small for us, given our scale and size—we do that through the VC funds as they grow and scale.
It is a model that we have developed across the world, in Europe, as well as in the UK. We have invested in over eight or nine VC funds. That provides us with a good lay of the land in terms of a lot of the series A and B start-ups. When it gets to the series C and D stages, that is when we will come in directly and write those larger cheques to help those companies scale and grow to IPO, and hold them beyond that if they are attractive companies at that valuation.
Q131 Lord Drayson: Thank you for that explanation of your investment strategy. Focusing on the choices that you make about which emerging or established technology sectors to invest in, what drives your decision-making to select those sectors? Do you do that independently of the view of the VCs that are searching for these investment opportunities for you and direct the sectors that you think they should be looking at, or do you really respond to their advice to you?
Aftab Mathur: It is a mix of both, in the sense that we invest in these VC funds because they are really at the front lines. They are seeing these companies and are with them from the early stages, and we get a lot of insights from them in terms of which portfolio companies are starting to scale, which are starting to grow and which are starting to break out, if you will. But at the same time, when it comes to us directly investing, we do so on our own. We have to do our own independent diligence on those.
As with any other large VC or growth fund, it is a question of the key parameters. We are looking at the founders, the defensibility of the product, the technology, the addressable market size, as well as where the company is in terms of commercial traction and stage, and its go-to market.
But the one nuance for us that is perhaps slightly different from others, is that we also look at opportunities where we can provide scale-up capital at real scale. Given the kind of scale that we operate at, we need to be able to write a minimum cheque size of at least X amount. If it reaches a stage where we can write only a small cheque, that would be harder for us. Our investment decisions are also predicated on how much we can invest in these companies that can then scale up and grow. So we look for opportunities where the companies require a lot of capital, because that is when we can come in and play a differentiated role.
There is enough capital out there today. How do we differentiate ourselves? One way is by being a long-term, patient, scalable investor. That is how we differentiate ourselves from a number of other funds. They may offer the right opportunities but, clearly—as you can tell—in AI, which has become very hot on this, there is a lot of demand for the same sort of companies today. Being able to provide that differentiated, long-term capital at scale is critical for us.
Q132 Lord Drayson: Can you talk to the thinking that you go through when considering an investment in a particular country? Take, for example, a VC fund that is located in say, France, Germany or the UK. In terms of the ability of other investors to invest alongside Temasek at that big cheque stage, we are focused in this inquiry on understanding what is going wrong with the UK’s late-stage investment availability. It would be great to get your view as to how you see the attractiveness—or otherwise—of the United Kingdom from that point of view.
Aftab Mathur: Sure. There are two to three parts. The first is the fund managers themselves, then there are the direct investment opportunities that we look at.
On the fund managers, we are looking at the so-called tier 1 managers—the ones who have shown the track record and performance to be good pickers of companies. We have begun to trust the judgment of certain VC funds and GPs more than others, so we tend to concentrate our capital with them. We have a very strong, close dialogue and relationship with them.
In terms of direct investing as companies scale up and grow, one of the big differences that we have seen in the US versus, say, in Europe—or even other markets—is in the risk capital and the ability to provide catalytic capital at that series C or series D stage, when the companies are at that inflection point and about to break out. If they require $100 million or $200 million at that point, you will find that the US VC funds will come into their companies and say, “You know what? We’ll provide not just that but even more, so that you can take the company not just from A to B—we’re helping you go from A to C”.
The challenge we find in certain other markets is that that thinking, in terms of being that catalytic capital, is not there. They say, “If you think that you need so much, we will actually give you just a little less so that you are focused and disciplined”. There is a fine balance between being disciplined and providing them with that catalytic capital to go from A to C. It is a very different set of thinking that the US does well. I do not want to generalise about what other markets may or may not do, but the US has done that very well as compared to any other market that we have seen.
That is what makes the difference: these companies having that capital and that cushion. Start-ups go through ups and downs all the time. It is about having that cushion, so that they can then really break out, and giving them that runway. You are seeing that today with all these AI companies and the kind of capital that they are raising. You do not see that in other markets in the way you see the US VCs funding their start-ups there right now.
Lord Drayson: Do you see that attitude to risk as a cultural difference? Or is there something either structural or in policy that is holding back Europe and the United Kingdom, say, as compared to the US?
Aftab Mathur: It is more a stage of the market cycle. As we all say, success leads to more success. What happened with the US with the PayPal mafia that came about is that it was able to give back into its own ecosystems and continue to grow. That gave people confidence. When you see those exits and liquidity events happening, it is about the market and that circularity of capital. We also invest in VC funds. Very often, now, those VC funds are within a timeframe of eight to 10 years, giving us our capital back. We reinvest it back in, and that continues to grow and scale up as we grow.
Other markets are in different stages of that journey. That will happen; it is part of the evolution of every market. We are seeing that to some extent in India where, as the liquidities have come through, capital is starting to be recycled. We are also seeing it in Europe in certain instances. We are seeing it in China, too; it has happened in China in the past. That is important. Once that flywheel goes into effect, that is when you see the ecosystem mature. I think that Europe is still on that journey.
Q133 Baroness Walmsley: I have another question about Temasek; we will come back to Dr Nédellec in a few minutes. Mr Mathur, Temasek obviously has a very different structure and scale from the British initiatives, such as the British Business Bank and the National Wealth Fund—not least in the massive amount of GDP that you control—but, from your experience at Temasek, what advice would you have for those UK organisations when it comes to identifying promising technology companies in which to invest? How do you think things would differ in the case of an investment manager that needs to invest predominantly in UK companies?
Aftab Mathur: There are elements of that with which we also have to deal, given who we are and given some of our own initiatives in the region. There are two parts to this. One is the fact that, at a high level, we are very focused on financial returns, obviously. To be sustainable and long term, we need to agree with our stakeholders on the minimum threshold returns that we need to target.
Then, off that, there are certain instances where we will make investments based only on that financial returns target. Certain capital is carved out to do things that may not necessarily meet those financial return targets but are important for the national good and are important from a strategic perspective. These may be sectors or technologies that are more capex-heavy or have longer gestation periods, where the return profiles will be very different but, as long as we carve that out, we have that discussion with our stakeholders and make sure that, on a blended basis, we are still targeting the kinds of returns that our stakeholders want. That becomes very critical for us. We do that a lot. There are certain things that we need to do from a stakeholder perspective; we manage those very carefully.
When it comes to those strategic elements, that is where we tend to spend more time. It tends to be where we can provide that catalytic capital; I talk about catalytic capital a lot because that is what we spend a lot of time on. It is about crowding in private capital so that we are the first investors in some of these things, where the private markets may either not work or not work as efficiently, but we are looking carefully to make sure that, as part of us catalysing those investments, we are able to bring in private capital to ensure that this space can be self-sustaining over time. However, a situation where we are going to be the only investor in some of these early-stage technologies is a problem. We cannot always be the only provider of capital for these things because, obviously, we are looking at this from a sustainability perspective.
Finally, the last thing I would say about the early stage is that, given the risk profile of this, it is important to have that diversification. Both the British Business Bank and the wealth fund need to focus on only the UK. I would imagine—indeed, I am sure—that they are already doing that and are at least trying to find diversification across sectors and stages. Being too exposed to a certain sector or region will have knock-on effects because of the cyclical nature of some of these investments, so having that diversification is critical.
Baroness Walmsley: One thing that we have heard about is a lack of investor expertise in the UK—a thing that it does not sound as if you have at Temasek. We appear to have a lack of ability to assess the value and potential of science and tech companies and a lack of equity in our institutional investors, which we think leads to more conservative investment decisions. How have you developed the investor experience at Temasek? How do you get science and technological understanding into the various sections of investment that you are responsible for?
Aftab Mathur: There are two parts to this. We recruit specialists, aligned with our investment focus areas, who have deep domain knowledge in those sectors. We also tap into a very broad network of technical experts for company-specific diligence; those experts could be from any part of the world.
We also have advisory panels globally who help us with the domain knowledge and expertise that is required for certain technical investments. We balance those with our own investment teams and the financial expertise that they have. It is about making sure that we are balancing the technical expertise with the commercial considerations before we make any investment. Even within Temasek, we have various government agencies—such as A*STAR, Enterprise Singapore and others—where we often have talent exchange programmes. We bring them into Temasek for certain periods of time, or we have people seconding over there.
So we leverage their technical expertise, policy insights, et cetera, which the Government are looking at as well, as part of our own investment due diligence processes. These collaborative relationships with the experts, both outside Singapore and in Singapore, have helped us in balancing our own financial acumen in each of the investments that we look at.
Baroness Walmsley: Thank you; that is very clear. I have another very quick question before I move to a colleague. To what extent are Temasek personnel connected with Singapore agencies, such as the Agency for Science, Technology and Research, Enterprise Singapore and GovTech?
Aftab Mathur: Temasek as a whole operates completely separately from the Government—independently, based on commercial principles—but we work very closely with them when we can be supportive to each other. So we participate in talent exchange programmes when we will have folks from some of those agencies come and gain commercial exposure through secondments to Temasek. That allows us to get to know them better and understand what the Government are focused on, in terms of technical focus, policy areas or networks that the Government want to build, allowing a free flow of dialogue and information between the two. So we are very close to them, and we continue to build on that.
We are a small country, so we can have that ongoing dialogue and engagement, and that has been very helpful in advancing some of the agendas that the nation has, as well as helping some of the start-ups as they look to scale and grow by leveraging the Government and policy insights that they want to develop.
The Chair: You mentioned A*STAR, which is highly regarded around the world. Do you work very closely with it on its R&D and spin-out companies coming directly from it? Is that a big feature in your activity?
Aftab Mathur: Yes, we do it in two ways, in fact. We try to bring a lot of global companies that want to come to our part of the world and link them up with A*STAR, which helps them with pilot programmes and so on in the country. That helps in building up a Singapore hub for some of those companies as they want to come to Singapore. A*STAR has great R&D facilities as well, which allows some of these folks to come and base themselves in Singapore. It is the same on the other side, where we have a deep-tech investment programme.
What the Government have done very well is to bring together agencies, because otherwise you would all be working in silos. A*STAR has great R&D coming out—as do some of the universities, NTU and others. Having them work together in clusters or hubs alongside the VC funds and the start-up community as well as the universities has helped to build very vibrant hubs or clusters in various parts of Singapore for very specific sectors, whether it is for synthetic biology, food tech or clean energy et cetera. We have clusters and hubs for that.
Q134 Lord Ranger of Northwood: Thank you. I apologise to Dr Nédellec, but here is another question for Temasek, but we will come back to you. Aftab, it is good to see you and thank you for your time today. You and I have had a few discussions around this topic over the period around the landscape for investment, what is going on and how it changes. You guys take a very long-term view. Some of the challenges that we discussed were on the lack of realisation or return for investors, which is cultural in terms of what is happening in the geography but also in the minds of those founders. Could you expand a bit on what we discussed around potential? Sometimes people measure things by unicorns, but if unicorns do not materialise in the market, the return is not there. How do you see that in different geographies, especially around Europe and the UK?
On a second point, why are you guys not at London Tech Week? How do you see that playing a part? As you have said, the hot area is AI, which is booming around the world. Is it at the peak of the hype cycle? We do not know. Are you seeing a cooling off in that investment profile in particular regions because of the cultural issue around founders?
Aftab Mathur: There are two parts. The first part is the success and liquidity, which is so critical. As I said, it will really be in waves, when ecosystems are mature. You are going to see that—and it is almost sector by sector. The US is furthest along; we have seen that, and we have seen this flywheel now whereby we are seeing a healthy exit environment and capital continuing to flow as a result of that. In other markets, we are seeing it almost sector by sector. Rather than just saying in a broad-brush way that we have seen no exits at all, I think we are going to start seeing it by sector. As the markets evolve, I think we will see that translate across other sectors.
Europe is a great example of what is happening with fintech, and what happened over there with a lot of companies that had those exit events or liquidity events. Across the board we have had a lot of fintech start-ups that have scaled and grown, and whether they listed in the US or not did not matter; it was more about seeing that scale and growth. There are other sectors that will see that in Europe, and it is similar across other markets. We will see that in the UK too—but even in other markets we can see it by sector, such as in India. We saw certain sectors such as e-commerce be the first to have those liquidity events, and then it slowly starts trickling down. It is all about getting that first success and starting to build out that comfort level, then it starts trickling down to other sectors. As a result of that, the VC and growth funds get more comfort and start supporting the ecosystem, and the ecosystem also gives back, when the seasoned entrepreneur mafia comes together to help the ecosystem grow. That is the journey that we are on.
On the topic of AI, as you look at the value chain there are certain areas where a lot of funding has gone into it—particularly in the LLM space, with the open AIs, with Mistral and others. But now we are seeing the AI native space specifically by each vertical, with companies starting to grow. Whether it is in coding, healthcare, HR or AI customer service agents, we are starting to see that, and that is the next way when we will see companies go from zero to a hundred million in 12 or 18 months. That is an area we are keeping a close tab on, because that is probably the next wave where a lot of the capital is going to go.
On your last question, we have people on the ground for London Tech Week and the Founders Forum, and we are also doing something in Paris. So we have a whole bunch of people on the ground, and we are covering well the European and particularly the UK tech ecosystem, with our office there and our focus on the UK.
The Chair: Dr Nédellec, you have been incredibly patient. We now have quite a number of questions about science and technology in France.
Q135 Viscount Stansgate: Bonjour. We have heard a few times in our inquiry that the French Government make a much more active effort to support specific science and technology companies. The Tibi reforms and the role of the BPI in investing in science and technology companies have been cited as an example of this. Could you give us some insight into the French approach under President Macron, and the policy initiatives put in place to support that—and whether you think that there is anything that the UK could learn from the French experience and French success?
Patrick Nédellec: It is indeed true that under President Macron we have seen a strong incentive to develop higher education research and innovation. The first thing to mention is that there will be no developments in R&D activity without fundamental science. So it is a real issue to continue to have long-term investment in the early stages of research, having the grass to grow more substantial fruit in future. One of the major changes that we have seen at this early stage of fundamental research was to organise a long-term programming law for public investments on research. This law was dedicated, first, to secure the funding research at an early stage; it was also made to ensure that we will have a better strategic view for public investment on large infrastructure that costs a huge amount of money that you cannot think of based only on your annual budget.
The third point, which was quite critical within this programming law was to try to leverage the gap between the average salaries of researcher in France, as compared to other places in Europe. This is maybe one of the questions we will address later. Attracting research and development in France also includes providing the researcher with an average salary that could be comparable with neighbouring countries such as the UK, Germany, Italy and others.
This programming law aimed to allocate an additional €25 billion to research by 2030. However, as is the case in many countries, we are currently facing significant public debt. In practice, this has meant that around €3 billion has been invested in public R&D over the past five years—falling short of the intended trajectory, which aimed for between €10 billion and €15 billion over a decade. In other words, about €2 billion is still missing if we are to meet the target. That said, this programming law has provided a more stable framework for securing research budgets despite fiscal constraints. As you know, science often faces challenges when public finances are tight. That’s the first point I’d like to make.I will move back to what you mentioned about the BPI—the public investment body—and the Tibi initiatives. It is true that, under Macron’s leadership, this investment bank took a more central role in investments for companies, especially given the fact that, today, Bpifrance is a one-shop stop for companies to get support. Bpifrance works by providing loans, equity investments and innovation programmes. We have a programme for deep tech development companies. There are also specific developments for companies exporting abroad. The BPI’s budget today is roughly €34 billion, with €12 billion for loans, €4 billion for equity investments and €7 billion for innovation programmes. So this bank is playing a really central role in our ecosystems.
The Tibi initiative, under Macron’s leadership, is to find a way to better invest in the late stage of development—this transfer of technology from academia to the markets. The idea is to mobilise the funds from company insurance and pensions to be better able to invest in high-risk R&D developments. The first phase of these initiatives started in 2019, and these Tibi initiatives succeeded in raising €7 billion of investments for high-risk projects. We are now in the second phase of these initiatives, which started in 2023. The objective is to raise €7 billion more in high-risk investments. These two bodies play a very important role today.
Of course, these are not the only bodies that help the French ecosystems to develop R&D activities. I will mention several activities that pay a very important tribute to these developments of R&D activity and that help the companies. The cluster initiatives and incubators are something that we share, because I have seen many such clusters here in the UK—especially the corridor of Oxford and Cambridge. There is a very interesting project to develop and leverage R&D activities around this corridor. I will suggest a similarity with the Paris-Saclay cluster, which is a very attractive place where you see high-level, high-ranking universities and incubators, and capital investment in large infrastructure. That helps the ecosystem to have more free movement between academia and companies.
One of the successes of these clusters, from the French perspective, is the huge transformation that our higher education systems witnessed during the last 20 years. In the past, we had highly fragmented higher education systems, with a lot of universities in French territories—a lot of grandes écoles, as you may know, and engineering schools. All of them were separated around the ecosystems. During the last 20 years there were continuous policies on this subject. It is quite interesting that, whatever the political orientation, the policy remained the same during all that time. It was trying to make comprehensive universities, including all these grandes écoles and engineering schools, that today allowed us to have a smaller number of universities but much more comprehensive universities that reach high-level standards, from the international perspective.
These strong investments for regrouping and having comprehensive, strong and autonomous universities allowed us to better create these cluster ecosystems. Universities are really attached to their local environments, and it is very important to create these local environments for higher education and for companies. So clusters are very important things that have helped the development of companies.
Another policy that we have seen play a role in the development of companies is the innovative public procurements that have been set up to encourage at least 2% of procurements by public bodies to be targeted towards innovative SME companies. This creates secure markets for these companies and helps these companies to get more visibility and credibility for the future.
Last but not least, there is a very important point where our Presidents get quite involved: the international and European perspectives. President Macron, for example, opened the Choose France summit in Versailles a few weeks ago. It is a place where President Macron succeeded at creating very attractive and highly visible R&D ecosystems to attract investors from abroad: companies and higher education universities that come to Paris to see what is going on to help the creation of these companies. This creates some credibility for these French ecosystems for start-ups and growing companies, which helps us a lot to be much more visible from the international perspective.
Of course, on the European issue, our Presidents are strongly involved in developing the sense of belonging to the same community and trying to see how we could leverage our national approach with the help of European initiatives, such as the Horizon Europe project, which financed a lot of companies. There is also what we call the innovation EIC initiative at the EU level, which is an interesting body to invest in common in companies and R&D.
The Chair: We have quite a few more questions and time is running out. Lord Berkeley?
Q136 Lord Berkeley: Dr Nédellec, your last evidence was fascinating because it told us how France is moving forward in attracting investment. We have some problems here because we are good at starting off research but, when it comes to financing the next stage up, there is an awful tendency to look to the United States for some kind of finance. You have given us some hints this morning as to how we can do it with or in parallel to France, but can you think of any other way that we could improve our own attractiveness to the next stage in finance and learn from some of the positive things you have done, as well as possibly the ways in which behind the scenes—and I know France is very good at this—it makes things more difficult for other investors so you may not want them quite so much? Can you add something to that?
Patrick Nédellec: If you could put your question more precisely, I would like to make sure that I understand its exact objective. Sorry.
The Chair: Lord Berkeley is asking about the possible reluctance of the French Government to allow foreign companies to take over French companies.
Patrick Nédellec: I see. That is a good question. Let us say that that is not a question only in France; it is also a European question. As you know, at EU level, Article 22(5) of the research and innovation treaty tries to make sure that investments made with public European money stay in Europe. An example shown at that time was a huge well-funded European project involving academia and enterprises. At the end of two rounds of financing from the EU, one of these companies, the leader company, was taken over by a foreign country. One of the key issues is how to keep sovereignty.
As has been said, the thing is to find a balanced approach regarding security and investment. It is not that France or the EU are reluctant about international investment—as President Macron mentioned, I think two weeks ago, strong actors from abroad have decided to invest in France—but it is a question of analysing the situation and the competition. To go back to the EU point, I am really pleased that the UK rejoined the EU’s Horizon Europe and even more pleased that as of a few weeks ago the restriction to calls does not affect the UK. The way that that was done is that the UK demonstrated its ability to open calls and to share some kind of identical views for the future.
The Chair: To pursue this for a minute or two longer, we are interested in the distinction between foreign investment in French science and technology companies and foreign takeovers of French companies.
Patrick Nédellec: I am not so much aware of takeovers, except for the European experience that we have seen. I am not an expert on that so I prefer to stay away from it, because I do not want to say things that are not completely true.
The Chair: We understand.
Baroness Neville-Jones: Could you say something about the role that the French Government envisage for themselves in the general direction of science policy and indeed the movement of scientific activity into the commercial world? Looking from outside, we would say that the French Government probably arrogate to themselves quite a large role in that and regard it as a priority. Is that an accurate view? What do you regard as the key elements in the Government’s approach?
Patrick Nédellec: On research and development, the key elements that have set up the ecosystem in France rely first of all on substantial public investment in research. We have a lot of government leadership.
Baroness Neville-Jones: Do they choose research domains?
Patrick Nédellec: Yes. To give you a quick idea, there is €30 billion for research that is 85% run by the Ministry of Higher Education and Research. Since then, two specific bodies have played a crucial role in financing research. The first is the France 2030 initiative, injecting more than €54 billion of long-term investment into specific targeted thematics such as the Programme Prioritaire de Recherche, a priority programme of research into quantum technology, AI, the green transition and so on. Those are highly competitive calls, and that money is dedicated to projects that are thematically oriented.
Another initiative is France Relance, which, as you know, is a €100 billion investment made at EU level, with €40 billion coming from the EU and €60 billion from France, to develop the ecosystems and the cluster initiatives. That is quite a lot of money.
There is another initiative that plays an important role in attracting investors from abroad as well as in developing companies. It is a very strong tax incentive that France has put in place: if the company invests a lot in R&D then there is a 30% tax rebate on that investment. That policy is helping us to attract a lot of companies and investors to our ecosystems, as their research has then a reduced cost because of that tax rebate. I am not sure if I have correctly answered your questions.
The Chair: We have a few more questions but I am conscious that time really is running late.
Baroness Neville-Jones: Chair, there is one question that I want to pursue about the Government’s role in procurement. You have the commande publique en avant, which presumably is a procurement instrument. How does that operate and how important is it?
Patrick Nédellec: Again, coming from a pure science background, I am not really an expert on that. However, I understand that there is a recommendation—I am not sure if that is the correct term—for public bodies to benefit from the products or services that start-up companies could provide. That has helped these companies to develop and have a more secure environment. Again, I could come back later to tell you more about the exact way that it is implemented.
Baroness Neville-Jones: That would be helpful.
Patrick Nédellec: I will check that and I will come back to you—but it is 2% that has to be done through this policy.
Q137 The Chair: We have heard quite a lot in our inquiry about the importance of cross-sector mobility, and France is often quoted as being excellent in the interchange of personnel between Government, academia and industry. That is not so much the case in the UK. Can you comment on that?
Patrick Nédellec: I am one of those people who moved from the ministry of higher education and research to the ministry of foreign affairs. We have a platform for civil servants where you see all the positions available to those who want to move from another ministry. It is works for the ministry of foreign affairs, but it also works with companies and the ministry of the economy to help this mobility. In specific circumstances, you can move quite easily.
The major issue is finding a way to evaluate the progression of people who move. If I am going back to my ministry, I am not producing scientific papers, so how can you evaluate me? So, when you start this type of policy, you need to create a new kind of evaluation. The way you evaluate civil servants during a mobility in another ministries or in companies is crucial (evaluation criteria must change).. Because it is important to value these mobilities, because we all know that they are essential to keep an open mind for future positions. My colleague from Singapore told us exactly how strong it is to be able to move from one sector to another. So the real issue is to find a way to evaluate this and to create the appropriate body to do so.
The Chair: You put your finger on the problem that we have in the UK: there are perceived barriers to career progression in this mobility between academia, industry and Government. But, in France, you are saying that you also recognise the same problem.
Patrick Nédellec: We do. As I said, it is not always a real success because, as a scientist, I still run through the progression of my career—as a director, professor and so on. If my evaluation is done purely academically, I will never be able to progress. So this is again about an interdisciplinary body to evaluate this mobility that is essential for the future. A lot of people suffer from having no recognition of their mobility, so it is really difficult.
Q138 Lord Stern of Brentford: I have a related question about the background of the civil servants. The evidence from both Singapore and France seems to be that, in those countries, the background of civil servants is stronger in science and technology than it is in the UK, where the civil servants come, on average, from a more generalist background. What effect do you think that differential make-up among civil servants from the UK has on policy-making, execution, finance and so on?
Aftab Mathur: It is well known that the Government send a lot of students for scholarships to various universities globally in various fields of study, and then they come back to Singapore and work with the various agencies for a period of time. That has worked very well, and not just in grooming the best and brightest to build up those capabilities. We talked about mobility—those same folks then leave Government and go into the corporate world. We have a lot of that as well: they go from the agencies into various large Singapore-based corporates, some of which we own—the airlines, banks, et cetera. They come in and translate some of the work that they have done in government to the large corporates as well.
Lord Stern of Brentford: Is that mobility strengthened if those students have done a science and technology degree elsewhere?
Aftab Mathur: Absolutely—there is a good mix of folks who come back, globally, and bring that experience versus those who are home-grown. There is that mix within the agencies.
Lord Stern of Brentford: In France, there is a long tradition, with Ponts et Chaussées, Mines and so on, of people who are very strong in science and engineering going into public service. Do you think that history and background has had an effect on policy-making, execution and investment in France?
Patrick Nédellec: I do not know. Many of the people coming from these institutions, as you mentioned, are moving more towards the private sector. I have noticed one major thing. In the past, we had a school called ENA—École Nationale d’Administration—which produced our future policymakers. Now it is called INSP, but it has the same spirit. It opened this formation to backgrounds other than Sciences Po, which is the classical way to reach this position. In our modern world, we need to have more scientific backgrounds among our future policymakers, and not only at the ministry of higher education and research. That is the case here in UK and in France. We were talking about China, and what struck me there is that almost all the Ministers had a scientific background.
Lord Stern of Brentford: Many of them from Tsinghua. So your answer to my question is that actually it is not that strong in terms of public servants or fonctionnaires—there is not a big technological background.
Patrick Nédellec: My answer is that I am not completely convinced that we have such a scientific literacy background in policy-making. We need to increase that, especially today when we are living in a technological world. We need to have that background. You said that you had evidence that in France there was a strong influence; it is true—we have some—but my feeling is that we do not have enough.
Lord Stern of Brentford: But more than in the UK, probably.
Patrick Nédellec: That I do not know.
Q139 Baroness Neuberger: This is the final question, which perhaps should be very brief, as I know that we are running out of time. We have to make some recommendations to government and say what it could do to help to scale up—the whole subject of this inquiry. What could we learn from policy or indeed practice in Singapore that we could usefully tell the UK Government?
Aftab Mathur: That is a good question. With a couple of things that we have done here, some of it has worked and, to be honest, some has not. We are still in that process—we are on a journey. We are coming at it from a funding and financing perspective, and a policy for that. For us it was threefold. We had to ensure that the funding was going to the right places in the market. The challenges that we had were slightly different from what you are seeing in the UK; for us, the challenge was what we called the series A and B valley of death. We had a lot of incubators and accelerators but we did not have the funding for A and B. We stepped in and capitalised the entire VC ecosystem by funding seven or eight funds to do that.
The other part of it was to go further and set up different pools of capital—around not just equity but debt and mezzanine. We set up other things that would help the innovation start-up ecosystem, not just the equity part. You need the other parts as well to function, as has happened in the US. Then we set up growth funds and pre-IPO funds and capitalised the entire ecosystem to get to the liquidity events that we wanted. That was a key part of that.
The second part, which was equally important, was making sure that the accountability was very strong from day 1. There is sometimes the view that, if we come in and fund, we are somehow seen as quasi-government and we are going to take liberties in terms of performance. That was set very well. In the VC world, it is hard to see results in a very short period of time from the financial perspective, so we had other metrics—technology milestones and so on—which we set with each of our funds and the start-ups as well. We said, “This is what we need to see by year 3, year 5 or year 7”. Holding them accountable to those metrics was very important to make sure that we had that flywheel effect from the capital side.
Obviously, the other part of it was supporting and working closely with the government agencies and the go-to-market support, as well as attracting talent, retaining the talent and getting the visas, as we did to create a hub for Singapore. That was more part of the softer side of things, while making sure that we were capitalising that piece of the puzzle—the talent and the ability to help with go-to-market scale and support in the region.
The last part was really about making sure that from a knowledge-based perspective we worked very closely with some of the large research players, whether it was the Googles or the McKinseys of the world, to help people to understand what was happening in the region, providing regular reports without some sort of agenda—so people did not say that it was coming from the Government so it was being made to look rosy. It was about having the right thought leaders come together to make sure that we could make the market as transparent as possible and help people to understand what is happening, to get external capital providers and the right founders and talent pool to come to Singapore.
The Chair: Dr Nédellec, what are your concrete recommendations, very briefly?
Patrick Nédellec: From my perspective, secure long-term research financing is very important. I recently read in a newspaper that the UK would develop some kind of law for public investments in research, if I am correct. That is very important—we have seen the strong interest in such secure and long-term investment in research.
The second point, which is very important for us, is something that I have not mentioned. As you have seen, we are injecting a lot of money into R&D right now but, as you know, we have a central administration and so many strengths and a lot of bodies that get involved in financing research. We have a body called the General Secretariat for Investment, which is co-ordinating at a national level all the investment on R&D to be able to have a better and a secure way to make sure that investment is in the best interests of our citizens. That co-ordination of actions is very important. It is easy to put a new programme in the system, knowing that there are so many existing ones—so co-ordination is very essential.
There are also some minor things, but as you say we are running out of time. These are the two major things that are very important for Governments to follow.
The Chair: Thank you both very much for spending the time telling us about your respective countries. It has been very helpful hearing about Singapore and France. Thank you, Mr Mathur, for staying up relatively late in Singapore to talk to us. We appreciate that very much. That concludes today’s public session
