Written evidence from the Humber LEP (TDE 63)
The Humber LEP and local partners identified broadband infrastructure and capacity and understanding among SMEs as two of the major barriers to UK business success in the digital economy.
Infrastructure
The Humber region has benefitted from considerable public and private sector investment in future-proved connectivity. In Hull and East Yorkshire, communications provider KC is investing tens of millions of pounds in its future-proofed fibre to the premises broadband service to create a best-in-class digital network. One third of the UK’s fibre to the premise is located in the KC area, offering massive competitive advantages for business. Gigabit city provider, CityFibre, is also investing £5.5m to install 70km of fibre network in the region. Take up for the Broadband Connection Voucher Scheme was exceptionally high in the region and an extension of the scheme to enable more businesses to benefit would be welcomed.
Over £25m is being invested in super-fast broadband in East Yorkshire and Northern Lincolnshire under the Broadband Delivery UK (BDUK) programme. The Northern Lincolnshire Broadband Programme has led one of the quickest and most efficient rollouts of superfast connectivity nationally. 97% of premises in Northern Lincolnshire will have the ability to access to superfast broadband by 2017 and further funding has already been secured to take coverage up to 99%. The East Riding of Yorkshire BDUK Programme is on target to successfully make superfast broadband available to over 42,000 premises by December 2015, in addition to those reached by private sector investment, with a further 4,500 premises due to be upgraded to superfast broadband by 2017 as part of the second phase of investment.
However, challenges remain in upgrading the infrastructure in the hardest and most expensive areas to reach - these still comprise a substantial number of properties and are typically (but not exclusively) located in more remote rural areas. Recent support work in the business community underlines the 'demand' for superfast broadband but also highlights the frustrations felt by businesses that are unlikely to be able to connect to superfast services at the present time. The inability to access superfast services continues to hold back those businesses affected, and is likely to be a barrier to new business startups in those areas.
Further significant investment will still be required in order to make superfast broadband available to those properties/businesses at risk of being left behind and digitally disadvantaged, to realise the potential of the rural economy and to successfully deliver against the Government’s recently announced Rural Productivity Plan. The speed of the roll-out of superfast broadband by commercial providers outside of BDUK intervention areas is also key to ensuring that all businesses in the Humber are able to benefit from the digital economy.
Additionally, the roll-out of 4G mobile technology has been slow to reach many parts of the Humber LEP area. Some notable improvement in the mobile infrastructure has been evidenced during 2015, partly as a consequence of important investments such as the CityFibre network, but further infrastructure upgrades are still required in order to improve mobile network coverage across the whole LEP area. There is also some crossover between mobile ‘partial not-spot’ areas, and ‘hard-to-reach’ areas for broadband investment, making digital connectivity, business growth and homeworking opportunities in such locations particularly challenging.
Building capacity and understanding in SMEs
SMEs across all sectors continue to face considerable barriers to effective participation in the digital economy. Over 900 Humber businesses have accessed digital business support via the BDUK schemes in Northern Lincolnshire and the East Riding of Yorkshire, which have provided over 10,000 hours of support in total. The type of support on offer has included a mixture of one to one business advice, one to one technical support, workshops, ICT diagnostics, business planning support, and some hardware devices issued. Social media and web presence were a major focus of the programme.
Despite this level of intervention, many businesses still need support to develop their digital skills and systems: even those who already feel they are savvy within one area have needs in another. The Northern Lincolnshire programme supported several technical and ICT digital companies in the programme and they still found much benefit, for example, from digital marketing workshops. Due to ERDF funding requirements, tourism, retail, agriculture and local service businesses were ineligible under previous programmes, although there was strong evidence of need and demand for support from those sectors.
There is strong evidence that SMEs in the region lack the skills, knowledge and confidence to invest in products or services which would enable them to succeed in the digital economy. The Centre for Digital Innovation in Hull has received approx. 350 requests for support from businesses. Many of these were requests for advice on whether suppliers were offering suitable products or requests for an “honest broker” service, asking for advice on which products or services to invest in.
Based on discussions with a range of delivery partners, the Humber LEP has proposed that future support programmes should focus on helping businesses to use technology to solve business problems such as accounting and CRM and addressing the demand for in depth advice on selecting products, services and providers. It is strongly felt by public and private sector partners that businesses need access to an “honest broker” who is equipped to advise on appropriate technological solutions to business problems, but who has no remit to promote or sell specific products and services. A publicly funded “honest broker” service which is empowered to signpost businesses to trusted local suppliers is seen as the most credible and trustworthy delivery option. Local stakeholders emphasised the importance of helping businesses to build long term relationships with local suppliers of digital products and services.
The Humber LEP recognises the valuable contribution of national schemes such as Go On UK and Tech City Digital Business Academy and is committed to enabling local businesses to access these sources of support.
Financial markets were felt to be generally supportive of the digital economy. Companies in the Humber who had utilised the Seed Enterprise Investment Scheme had high praise for the initiative and its role in reducing risk for investors in early stage companies. Local stakeholders commented that the investment market in London is particularly well developed: the markets are open to investment and investors have a good understanding of risk in the tech sector. Companies from the Humber region had not experienced significant challenges in attracting London-based investment, commenting that investors had no prejudice against regional firms.
However, it was noted that London investors did not actively seek to invest in the North and that the onus was on Northern companies to travel and integrate themselves into London networks. As a result, the poor availability of early stage finance within the Humber region was seen as a barrier for businesses that did not have strong connections with the capital. There was perceived to be a significant gap between angel investor knowledge and corporate finance knowledge in the North of England, which affected the ability of financial markets outside London to support tech startups effectively. Hull City Council was aware of a number of startups who had struggled to secure funding for new business startups and new applications development. It was felt by some respondents that access funding is largely geographically focused around the South East, perhaps reflecting close proximity to the financial markets. The current Regional Venture Capital scheme run by Finance Yorkshire has not proved effective in establishing an evergreen fund in the Yorkshire area.
This view is reinforced by the 2015 study into Using Financial Instruments for SMEs in England in the 2014-2020 Programming Period: A study in support of the ex-ante assessment for the deployment of EU resources, Regeneris, Jan 2015:
London and the North West have received the largest amounts of early stage investment in absolute terms compared to other regions in the three years to 2013, reflecting a strong mix of research intensive sectors and strong investor presence in some regards. However, investment of £176 million in the North West in 2013 stands well above the £13 million invested in each of the previous years and it is not likely that this rate of investment can be sustained. While the North East received the second lowest level of early stage investment, when taken as a percentage of annual GVA, this places it third among the regions. Yorkshire and Humber has seen the lowest early stage investment over the last three years – despite registering £15 million in investment in 2012, only £4 million was made in both 2011 and 2013.
Data from a survey of 62 business angels conducted by The UK Business Angels Association and Deloitte LLP shows that angels invested more capital in 2013 than in previous years, with the vast majority (83% of all angel capital) invested in early stage ventures and in the digital and internet sectors. London and the South East attracted the most investment, accounting for 54% of all investment, with the South West and the Midlands attracting 13% and 11%. This fits with the messages coming from the discussions with financial intermediaries across the Northern regions in particular, where the presence of business angels is seen as less prominent and scattered when compared to London and the South East.
Accessing finance was challenging regardless of geographic location for start up companies with no trading history, especially those run by young entrepreneurs with limited track record of running a businesses. There was a general lack of understanding among funders and investors about the support needs of young start ups. In addition, startups needed to be educated about how to negotiate appropriate investment packages which supported their future growth. There was scope for a more strategic approach to supporting micro-businesses through the public funding and through the mainstream financial markets.
Tech North has a significant role to play in improving access to finance outside London, following a cluster based approach. Local partners valued the contribution of Tech North to highlighting opportunities to investors, bringing investors to the North, upskilling startups to pitch for investment and educating local professional services companies to support startups more effectively.
Humber stakeholders saw Innovate UK schemes as good sources of funding and support for innovative businesses. However, the retrospective payment structure used by some schemes meant that start ups struggled to access Innovate UK support unless they had access to an alternative funding source to cash flow project activity.
Tech North was seen as a positive move towards supporting the development of regional tech clusters. Companies in the Humber would welcome Tech North-led activity to connect regional cluster to Tech City as a source of investment and potential collaboration partners. This could be achieved through the creation of a “Regional Tech Centre” in London, providing a base for regional companies to showcase their products and services and pitch to investors.
The following case studies describe innovative measures to support tech startups in the Humber region. To date, these initiatives have been delivered through private investment, although it was noted that more could be done, more quickly with additional revenue investment
Case Study 1 – Building a Cluster of Gaming Start Ups – Platform Expos
Platform Expos, established in 2010, is building a cluster of gaming and content creation companies in the Humber, building on the region’s established talent pipeline from local colleges and the University of Hull. Computer science students have traditionally left the region after graduation to take up jobs in more established tech clusters in the UK and overseas. Platform Expos aims to retain talent in the region by building a supportive ecosystem and vibrant start up scene to support new companies.
Platform’s model is based on close integration with local skills provision in schools, colleges and the University. The initiative’s annual Expo event aims to educate young people about career opportunities in gaming and digital content creation, delivering a programme of workshops and industry-led talks (delivered by household names including Google, Microsoft and Sony Computer Entertainment Europe) to over 1,000 students each year. Platform has built a particularly close relationship with Microsoft, working together to deliver educational programmes such as Touch Develop sessions for local 12-16 year olds.
Platform Studios, established in 2010, is an incubation space for new gaming and digital content creation businesses. Platform now runs three incubation spaces, all based within educational institutions at Hull College, Grimsby Institute and the University of Hull. These incubation centres have been highly successful in helping young regional companies to connect with collaborators and investors based in London and worldwide. A group of Platform companies, supported by the Humber LEP and the Hull and Humber Chamber of Commerce, ran a stand at GDC in March 2015, resulting in one company securing a major contract with Google for the supply of cardboard VR headsets. Two Platform companies, ViSR VR and Gateway Interactive, have successfully completed the Microsoft Ventures accelerator programme and have used the investment they secured as a result to return to Hull to grow their companies.
Case Study 2 – Innovation Partnerships – C4DI
Hull’s Centre for Digital Innovation (C4DI) has taken an innovative response to developing tech startups through innovation partnerships with local companies operating across a range of sectors. In 2013, a trial co-working space, C4DI Beta, was established as a forerunner to a bigger Centre for Digital Innovation project, a new £15m technology campus, 75% of which is funded by local developer Wykeland (opening October 2015).
C4DI’s model is based on helping large and medium sized industry innovate and grow, by providing opportunities for people to form startups in those industry niches. Those startups then have access to industry mentors, and supply chains to help accelerate those businesses in a way that wouldn’t happen elsewhere. Uniquely, C4DI’s startup ecosystem is based around generating a local client and customer base for the innovative solutions developed by tech startups. At the same time, it stimulates interest in technology driven innovation across the local economy, with the aim of creating a sustainable market for digital products and services. C4DI has corporate partnerships with 30 medium and large companies who engage with startups on a weekly basis, including PwC, Smith & Nephew, Reckitt Benckiser.
Since 2009, the local tech community, Hull Digital, has grown from 3 members to nearly 900 and has held over 100 meetups. Since mid 2013, C4DI has signed up nearly 200 active members who run startups and early stage companies. Since its launch in July 2015, C4DI’s pre-seed fund has raised £120,000 for investment in startups.
The UK’s Intellectual Property regime provides good protection for the digital economy and plays a significant role in encouraging companies to relocate to the UK from overseas. Initiatives such as the Patent Box and R&D tax credits were valued by Humber companies. However, it was noted that that these incentives could only be claimed by companies that had been trading for over a year and therefore were inaccessible to innovative start ups during critical phases of their development. Patents and other forms of IP protection were sometimes prohibitively expensive for early stage start ups and micro-businesses. Additional support for start ups and micro-businesses to protect IP would be welcome.
The speed and ‘trans-border’ nature of copyright or patent infringement posed challenges for digital sector companies. Once new technologies or applications were introduced into the market, there appeared to be limited enforcement activity following any infringements. Material available from the regulatory regime was, on the whole, of an advisory nature. More practical ‘hands-on’ help was needed for the entrepreneur in such instances. This could be considered as part of the Enterprise Bill currently being put into legislation.
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The Humber LEP has discussed the issue of digital skills with the Humber LEP Skills Network (a forum for skills providers) and the Humber LEP Digital Sector Group (predominantly industry representatives).
Employers in non-digital industries, especially SMEs, are sometimes unclear about the digital skills they need in their businesses (often linked to lack of clarity about what technology and systems would benefit the business). As a result, they may struggle to articulate what skills and training they require for new and existing staff. Tech sector businesses tended to have a clearer view of the skills they needed in their workforce, but noted that skills providers struggled to keep up with the pace of change in the industry. Skills providers are keen to address this issue and the Humber LEP is currently exploring options for supporting providers to up-skill staff through joint CPD and “train the trainer” activities.
Organisations involved in supporting tech startups observed that there was a gap in business and entrepreneurial skills, such as businesses development, sales and marketing, for tech startups. Greater integration of technology across the school and college curriculum was felt to be important to equip young people with the skills and knowledge to work in tech businesses.
Skills providers in the region are keen to engage with employers and some close collaborations have been established. Apprenticeship programmes were seen as a good way of engaging employers in the design of provision because employer engagement was built into the structure of apprenticeships. However, mismatches between the needs of local employers and educational provision were still evident, particularly in the area of web design and development. More support for education and skills providers to tailor provision to meet the needs of the local economy would be welcomed.
The work of The Tech Partnership in engaging employers at a national level was welcomed. The new Ron Dearing UTC in Hull (scheduled to open September 2017) will increase employer engagement in digital skills through its specialisms in Digital Technology and Mechatronics and focus on providing students with the advanced technical skills required by local employers. However, local many employers were unaware of opportunities to influence provision through collaboration with schools and colleges. In particular, the smaller companies which make up the vast majority of the local business base lack the time and resources to contribute to designing provision.
Skills providers and employers commented that careers in the digital economy were not clearly defined and that there was limited awareness among young people of the relevant specialisms and the skills required for each career path. As a result, young people were not equipped to make appropriate decisions about progression pathways into digital sector careers. Skills providers would welcome more resources and information on digital careers (in “digital” and “traditional” businesses) to assist with the delivery of CEIAG.
Business Development Manager
30 October 2015