Startups developing future mobility solutions need £1 billion of private investment to achieve their full potential

Author

Beauhurst

01 September 2020

Prospedia Capital and Beauhurst have studied the investment flowing into early and growth-stage companies serving the UK’s burgeoning advanced automotive technology sector. Their report identifies a need to accelerate innovation in future mobility by investing in an industry that every year spends £4 billion, according to the SMMT, in research and development, of which only 7 per cent reaches SMEs at the crucial seed, venture and growth stages.

“In 2019, small and medium enterprise automotive companies received £277 million,” says Robert Palmer co-founder and chief executive of Prospedia Capital. “Pundits often consider SMEs the backbone of the UK economy and the means of recovery. But not if they only receive a drop in the ocean of R&D funding. Our research indicates that it’s possible to leverage £1 billion of private equity with £200 million of government grants.”

“This £1 billion of private equity investment is needed to ensure the sector achieves its full potential,” says Henry Whorwood head of research and consultancy at Beauhurst. “If this can be achieved, the benefits for the economy and society will be huge.”

The report reveals that SMEs in 2019 received almost £5 for every £1 of grant money supported by Innovate UK. It cites government plans to more than double public investment in R&D, which augurs well for the sector as innovation grants help startups to secure private funding. The report also commends the UK Business Angels Association (UKBAA) for its efforts to strengthen the angel ecosystem as being a vital part of a strategy for economic recovery.

“The UKBAA recognises that a strengthened angel and early-stage investment ecosystem is a vital part of the strategy for economic recovery,” says Jenny Tooth chief executive UKBAA. “We know that so many small businesses are bringing innovative solutions to impact on our environmental and societal challenges and many more companies have seen the opportunity to innovate and disrupt the market, taking advantage of core technological developments at this time.”

“Academia has a strong role to play,” says Dave Greenwood Professor of Advanced Propulsion Systems, WMG, at the University of Warwick, who added his insights to the report. “Not just educating the engineers, businesspeople, lawyers, and financiers whom our industries need, but also delivering deep understanding and new technology to enable the industry to push beyond the state-of-the-art.”

Other contributors include Simon Edmonds deputy executive chair & chief business officer at Innovate UK, Neville Jackson chair of the Royal Academy of Engineering ‘Increasing R&D Investment’ project, and Daniel Ruiz chief executive officer of Zenzic.

“We must ensure effective communication of funding and finance opportunities provided by both government and the private investment community,” says Edmonds. “We cannot do it alone though; private finance from angels and venture capital must be leveraged effectively as technologies and the companies behind them move up the TRL technology readiness levels towards production and full commercialisation.”

“The Covid-19 crisis has brought into sharper focus the vital role R&D has to play in the UK’s future,” says Jackson. “Not only in responding to upcoming challenges of the pandemic but also in driving the economic recovery, building back better and pursuing ambitions of becoming a global science and innovation superpower.”

“Initiatives led by the UK government and matched by industry have made the UK one of the best places in the world for connected and autonomous vehicle innovation,” says Ruiz. “With the Centre for Connected & Autonomous Vehicles’ proposed five-year programme under consideration for inclusion in the Autumn Spending Review, and the UK Automotive Council itself adopting the technology as one of its two central missions, the future looks bright for CAV in the UK.”

Understanding the need to plug this £1 billion funding gap was the inspiration for Prospedia Capital, which focuses exclusively on the advanced automotive technology sector and is at the hub of a fast-growing ecosystem bringing together startups, angel investors, fund managers and industry experts.

Steve Sapsford, a senior associate of Prospedia Capital, and Ava Scott, research & consultancy associate at Beauhurst, helped to research and author the report. Professor Sapsford is chairman of the Powertrain Systems and Fuels Group of the Institution of Mechanical Engineers (IMechE) and visiting professor at Cardiff University School of Engineering.

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