BBB Teach In presentation- August 2024 2024

Presentation to BBB teach in session by Stephen Roper , ERC August 2024

1. Understanding equity access and use in early-stage ventures A report for Innovate UK and the Department of Business and Trade   Stephen Roper and Robyn Owen Available at: https://www.enterpriseresearch.ac.uk/publications/understanding-equity-access-and-use-in-early-stage-ventures/

2. Questions…. Who seeks early-stage equity finance? What are the characteristics of these firms/entrepreneurs? What age/sector/size are firms seeking equity? Where are they located? What is the attitude of early-stage entrepreneurs towards using equity? How does this vary relative to other financing sources? How is this influencing their demand for early-stage equity? How does this differ across regions and sectors? Are firms investment-ready? Do they have competencies in corporate finance or have they sought external advice in fund-raising? How easily available is high-quality advice? Is this different in different regions/sectors?   Do firms seeking equity get the finance they are seeking? How does this differ between potential sources of equity funding and locations? Where are the equity ‘gaps’ in terms of investment size, sector, stage of development and location? Are these uniform or specific to sub-groups of companies? Where early-stage entrepreneurs do encounter equity gaps how is this influencing the financing and growth of their businesses?   How does the customer journey towards equity funding work? Are there specific barriers or challenges? Where equity is not obtained where did the process fall down? Why did the process collapse in the firm’s view?

3. Data – targeting early-stage ventures The business survey reported here aimed to collect data on a group of early-stage entrepreneurs both before and after starting trading, hereafter ‘ventures’. Standard approaches to constructing sampling frames based on business registers or Companies House data would potentially miss pre-trading or nascent businesses. So here we adopt a different two-stage approach to the identification of potential respondents: Stage 1: Identifying potentially relevant ventures – we sought information from a range of accelerators, incubators and equity providers across the UK on their client companies (both successful and unsuccessful). In addition. we established a data-sharing agreement with IUK relating to the companies which had either applied to or participated in their Pitchfest event or received grant support for R&D or innovation. This generated a list of around 12,000 company names with some duplicated entries and very variable quality or no contact details for individuals.   Stage 2: Screening for equity-relevant ventures - where possible – depending on contact details - we then sought to conduct telephone interviews with firms. Two screening questions were then used to identify ventures which completed the main survey. These were as follows: (1) Have you ever thought or considered that equity finance might be appropriate for your idea, project or the business you run?   (2) Which of the following statements describe your reasons for being in business? …. (4) I hope to develop a product or service that will change my industry, society and/or make the world a better place.   Only ventures which responded positively to (1) and selected option (4) in question (2) were subsequently interviewed in full. Finally led to around 750 respondents (2023)

4. ‘Pre-trading’ and ‘early-stage trading’ ventures Pre-trading – length of development period (N=297) ES trading – date of starting trading (N= 429)

5. The search for equity: How many potential funders did you approach?

6. Were these new, existing funders or both?

7. What type of providers did you approach?

8. Successful getting equity?

9. When did equity process fail

10. Implications of not getting equity …

11. Implications and next steps Even among our rather ‘special’ sample of firms more than half had not applied for equity for some reason Where firms did apply they approached multiple providers (often 5+) and together around a quarter got all of the equity they were seeking; another quarter got some of the finance they wanted. Where deals did not work out most failed at the due diligence stage – reasons given varied however Phase 2 of the project is now underway seeking to enhance the overall sample size, get more regional spread in the coverage of the responses and move away from a sample dominated by Innovate UK contacts

12. Innovation in smaller firms – recent evidence from the ISNS Stephen Roper and Ully Yanita Nafizah August 2024

13. Innovation survey data Data from the UK Innovation Survey (UKIS) provides a robust long-term picture of innovation trends But … the most recent UKIS data relates to 2020-22 and provides little timely information on firms’ innovation activity or intentions. ISNS is a smaller, annual survey (c, 2000 firms) designed to provide this timely innovation information to inform policy thinking and development ISNS also includes micro-businesses for the first time with 5-9 employees https:// www.enterpriseresearch.ac.uk /wp-content/uploads/2024/04/ERC-Report-Innovation-State-of-the-Nation-2023-Roper-Nana-Cheraa-Stanfield.pdf

14. Innovation in the rear-view mirror - UKIS .. UKIS data suggests a falling proportion of UK firms are innovation active – the most recent data relates to the 2020-22 period…

15. And a growing gap between large firms and SMEs … and the gap between the percentage of innovation-active large firms and SMEs remains at all-time high levels (again, note 2020-22)...

16. About the ISNS data Sampling frames were obtained from commercial list brokers. Firms were included in the survey if they had more than five employees and were not part of the public sector or a not-for-profit company. ISNS data for each firm was provided by a management team member responsible for product or service development aspects. ISNS 2023 covered 2,018 firms, and data was collected between 14 November 2022 and 28 February 2023 (c 1200 interviews, 800 on-line). ISNS 2024 survey covered 2,001 firms and was undertaken between 1 st February 2024 and 22 nd May 2024 (c 1200 interviews, 800 on-line). In the analysis, observations are weighted by size and sector to provide representative coverage of the UK, sectors and sizebands.

17. Proportion of Firms Making Product or Service Changes Levels of innovation activity continued to fall between 2023 and 2024 In 2024, 56% of UK businesses reported product or service changes in the ISNS. This is a fall from 61% in 2023. Innovation rates fell most in small and micro firms between 2023 and 2024. A 6.2% decrease in small businesses' rate of innovation activity, compared to just 0.4% among large firms Falls in innovation activity are linked primarily to falls in product innovation, service innovation is stronger (see also LSBS)

18. Proportion of Firms undertaking R&D and innovation investment Overall, 39% of UK businesses reported engaging in some form of R&D activity in 2023, which remains the same in 2024 This overall pattern highlights some significant movements with large firms holding steady, some small increases in activity in small and medium firms and a drop in micro-businesses

19. Funding innovation The proportion of firms that used internal funding also increased from 66% in 2023 to 69% in 2024 and was notably higher among small businesses and frontier firms.   Micro firms are most likely to self-fund innovation activity with more diverse funding sources among larger firms

20. Collaboration for innovation (% of innovators) Overall, the proportion of innovating firms collaborating with external partners decreased from 40% in 2023 to 38% in 2024 This overall picture hides contrasting trends: C ollaboration activities decreased by around 3% among non-frontier and smaller firms in 2024. There was an increase in collaboration activities by around 3-4% among frontier firms and large firms with more than 250 employees.

21. Recruitment for innovation… 32 per cent of UK businesses indicated that recruitment issues restricted their innovation activities in 2024, a decrease compared to 2023. True across all sizebands. Among those firms experiencing recruitment difficulties, it was issues recruiting technicians (27%), graduate-level technicians (22%), and engineering staff (21%), which were more common both in 2023 and 2024

22. Future R&D investment and support needs (% firms) Overall, 47% of UK firms plan to invest in R&D over the next 12 months, a decreased proportion compared to 53% in 2023 This declining trend was particularly significant in smaller firms and non-frontier firms. Where firms plan to engage in R&D there is an increasing need for innovation support over the next 12 months. The proportion of firms seeking innovation loans will increase from 17% in 2023 to 29% in 2024. Similarly, there is more than a 20% increase in the need for support through R&D grants, R&D tax credits, IP support, marketing/export support, strategy advice, and finding innovation partners in 2024  

23. Final thoughts ISNS 2023 and 2024 suggest a continuation of the longer-term trends indicated by UKIS An overall reduction in innovation activity (mostly product related) Larger falls in activity – and therefore a growing ‘gap’ between larger and smaller firms Future R&D intentions are relatively weak suggesting a continuation of pressure on innovation activity. ISNS 2023 and 2024 both suggest the strong association between innovation and business growth. Innovators grow 2-3 times faster in both years. Declining levels of innovation activity are not helping with the growth mission

24. ISNS publications ISNS 2023 Innovation state of the Nation Survey 2023 Innovation in Micro-Businesses: Evidence from the Innovation State of the Nation 2023 Missing Links. Assessing the innovation implications of smaller firms’ limited collaboration for innovation. How Well Do Barriers and Enablers Predict Regional Innovation? Evidence from the Innovation State of the Nation 2023 ISNS 2023 and 2024 – report coming soon!

25. Workplace mental health & wellbeing and productivity Maria Wishart, Stephen Roper, Vicki Belt

26. Workplace mental health in the UK 18.5 million working days lost due to MH sickness absence (ONS, 2023) 300,000 people leave their jobs each year because of a MH issue (Stevenson & Farmer, 2017) Firm-level impacts : Absenteeism (the time workers spend off work due to ill-health) Presenteeism (workers being at work but not performing as expected because of ill-health, or working beyond contracted hours) Staff turnover (the need to replace workers who leave employment due to ill-health) Costs of mental health issues to UK business estimated at £56bn/ yr (Deloitte, 2022) Calls to put psychological safety on the same footing as physical safety (BITC, 2023)

27. Mental health and well-being practices, outcomes and productivity: A causal analysis Background: 3-year ESRC -funded interdisciplinary study University College Cork and the University of Nottingham Research foci: (RQ1) The causal influences on firms’ adoption and implementation of Mental Health & Wellbeing (MH&W) practices. (RQ2) The MH&W practices which deliver the strongest payoffs in terms of employee mental health and well-being. (RQ3) The causal links between employee mental health and well-being and productivity Aug 24

28. Insight 1: International comparisons (2023)

29. Estimated direct and indirect costs related to mental health problems % of GDP   Total costs Direct costs Indirect costs On health systems On social benefits On the labour market in million EUR % of GDP in million EUR % of GDP in million EUR % of GDP in million EUR % of GDP EU28 607 074 4.10% 194 139 1.31% 169 939 1.15% 242 995 1.64% Ireland 8 299 3.17% 2 232 0.85% 1 891 0.72% 4 176 1.59% Sweden 21 677 4.83% 5 696 1.27% 7 558 1.68% 8 423 1.88% UK 106 024 4.07% 36 353 1.40% 22 704 0.87% 46 967 1.80%

30. Data set Computer Assisted Telephone Interview (CATI) survey, for-profit and voluntary sector firms operating for at least 3 years, with minimum 10 employees Ireland: Sep-Dec 2022: 1,501 firms England: Jan-May 2023: 1,902 firms Sweden: Sep-Dec 2023: 1,000 firms Business and employee characteristics General sickness and Mental health sickness absence measurement & practices Mental health initiatives and outcomes Presenteeism

31. Mental health related sickness absence Proportion of firms reporting MH sickness absence in the preceding 12 months Sweden 1,000 firms, England 1,878 firms, Ireland 1,484 firms

32. Mental health related sickness absence Proportion of firms with long-term MH absence Proportion of firms with repeated MH absence Sweden 400 firms, England 471 firms, Ireland 291 firms

33. Impact of MH absence Proportion of firms reporting MH absence impacted on their operations in the preceding 12 months Sweden 400 firms, England 471 firms, Ireland 291 firms

34. Engagement in Mental Health initiatives Proportion of firms offering MH initiatives, by country & size Sweden 1,000 firms, England 1,902 firms, Ireland 1,501 firms

35. Insight 2: Workplace well-being in the UK 2024

36. A longitudinal dataset Computer Assisted Telephone Interview (CATI) survey For-profit and voluntary sector firms (not govt. or public sector) operating for at least 3 years, with a minimum 10 employees, in East & West Midlands Wave 1: Jan-March 2020 (Pre-Covid): 1,899 firms Wave 2: Jan-April 2021: 1,551 firms Wave 3: Jan-April 2022: 1,904 firms Wave 4: Jan-May 2023: 1,902 firms Wave 5: Jan-April 2025: 1,901 firms

37. Mental health sickness absence Proportion of firms reporting some level of MH absence Proportion of firms reporting long-term general & long-term MH absence 1899 firms in 2020, 1551 in 2021, 1904 in 2022, 1902 in 2023, 1901 in 2024 General: 1899 firms in 2020, 1551 in 2021, 1904 in 2022, 1902 in 2023, 1901 in 2024. MH: 556 firms in 2020, 338 in 2021, 480 in 2022, 471 in 2023, 482 in 2024

38. Presenteeism 1899 firms in 2020, 1551 in 2021, 1904 in 2022, 1902 in 2023, 1901 in 2024 654 firms in 2020, 265 in 2021, 394 in 2022, 692 in 2023, 707 in 2024 Type of presenteeism reported Proportion of firms reporting some level of presenteeism

39. MH initiatives: intention-action gap Proportion of firms that believe they should address MH Proportion of firms adopting MH initiatives Base: 1899 firms in 2020, 1551 in 2021, 1904 in 2022, 1902 in 2023, 1901 in 2024

40. Proportion of firms that offer MH initiatives Proportion of firms offering initiatives by sector Proportion of firms offering initiatives by size 1899 firms in 2020, 1551 in 2021, 1904 in 2022, 1902 in 2023, 1901 in 2024

41. Practice-based vs strategic MH initiative adoption Proportion of firms adopting practice-based initiatives Proportion of firms adopting strategic initiatives 1899 firms in 2020, 1551 in 2021, 1904 in 2022, 1902 in 2023, 1901 in 2024 833 firms in 2020, 841 in 2021, 952 in 2022, 970 in 2023, 1053 in 2024

42. Line manager training Proportion of firms that encourage open conversations about MH Proportion of firms that train line managers in MH 833 firms in 2020, 841 in 2021, 952 in 2022, 970 in 2023, 1053 in 2024

43. Qualitative insights from English firms Line managers’ experiences of managing workplace mental health issues Exploration of the ways in which line managers experience, and cope with, the management of mental health issues in their staff 22 semi-structured interviews with managers from a range of UK private & voluntary sector organisations, lasting 30 to 45 minutes

44. Need to be caring but maintain professional demeanour Feeling inadequate and unprepared Feeling unsupported …we didn't really know what we were doing …people are worried about saying the wrong thing ...we all just feel unprepared … we’re not feeling that confident They heavily rely on myself to deal with these situations …they're pretty shocking at giving you any support It’s further down the priority list I don’t think we really do have policies and procedures …if you’re remote, you’ve got to be much more attuned to how somebody is It’s a fine line between being sympathetic and …your professional job …we just want to be able to handle it professionally …we’ve got a huge responsibility to help people get through those times LINE MANAGERS’ EMOTION WORK

45. Line managers’ emotion work Expectations from others and themselves, about how they ought to behave Seem to control their emotional displays in line with these often-unspoken expectations, or ‘feeling rules’ that they perceive Participants appear resigned to absence of organisational support: feelings of alienation? Their assertions that they are ‘getting on with it’ suggests that while emotion work can contribute to emotional burden, it can also be ‘a major source of coping and finding strength and self-meaning’ (Hochwald, 2022, p. 1155)

46. Moving forward … Ongoing survey research with UK employers: wave 6 due in early 2025 Econometric analysis will continue to draw on longitudinal UK data to identify how mental health issues influence firm-level productivity, and which practices offer the best outcomes for mental health & wellbeing Employer case studies will explore the barriers and enablers to adoption of practices and initiatives as well as the impacts of mental health on team working Employee survey and interviews will deliver insight into workplace psychological safety climate, and the role of leaders in shaping it

47. Smaller firms and net zero innovation Anastasia Ri, Effie Kesidou , Halima Jibril, Kevin Mole, Stephen Roper

48. Background Research on ’green innovation’ in SMEs remains unusual still with many studies focusing on either larger firms or start-ups Key questions focus on the twin transition – digital and net zero – and whether smaller firms can cope with its demands Recent ERC studies suggest some key results relating to the drivers and enablers of the net zero journey in SMEs…

49. Evaluating the Trade-offs Between Digitalization and Net Zero Innovation in SMEs Understanding the link between digital technologies and net zero innovations is crucial for combating climate change Is there a positive or a negative trade-off however? Our study demonstrates that digitally advanced SMEs are more likely to be advanced adopters of net zero innovations. Our results offer crucial implications for SMEs, indicating that despite the constraints that SMEs face, digitalisation allows them to introduce innovations that reduce carbon emissions.  Thus, supporting SMEs in their dual transitions is vital. Distribution of net zero technologies adopted Source: Kesidou , E Ri, A and Roper, S (2024) Balancing Act or Two Roads to Travel: Evaluating the Trade-offs Between Digitalization and Net Zero Innovation in SMEs, Available on request.

50. Understanding the Drivers of Eco-innovation Intensity in SMEs What determines why SMEs start out on th e net zero journey, and what explains how they sustain and deepen their engagement? In this paper we examine the notion of eco-innovation intensity in SMEs. SMEs initial engagement in eco-innovation practices is driven by aspects of the regulatory environment - government grants and subsidies and the availability of external finance – along with organisational cost saving and reputational motives, and demand pull, prove critical in motivating firms to initially engage in eco-innovation. Sustained engagement depends on other eco-system capabilities – most notably business owner-managers environmental attitudes and internal digital capability. Our results shed light on the distinct factors that drive eco-innovation intensity compared to the initial decision to engage with eco-innovation, thereby allowing us to understand how SMEs can accelerate their transition to net zero. Work in progress! Draft available on request.

51. Sustainability goals and innovation – micro-businesses Micro-businesses tend to prioritize social and environmental goals but are also more likely to confront resource constraints that can restrict their capability to innovate. Are micro-businesses that prioritise sustainability goals more likely to innovate? What enables this innovation? Our results suggest that owner-managers prioritising sustainability goals are significantly more likely to generate new product and process innovations. T his effect is stronger when micro-businesses adopt digital technologies. Digital technologies enhance micro-businesses' capabilities, strengthening the connection between sustainability goals and product and process innovation. Jibril, H Kesidou , E and Roper, S (2024) ‘ Do Digital Technologies Enable Firms that Prioritize Sustainability Goals to Innovate? Empirical Evidence from Established UK Micro-businesses ’, British Journal of Management

52. ERC resources on sustainability and net zero