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Is the Jersey Innovation Fund a good use of public money? - We look at how much progress has been made since they opened for business

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THE saying goes that you shouldn't put all your eggs in one basket.

Applied to the Jersey economy, it means that becoming too reliant on one industry sector is probably not a good idea, because of the risks if that sector should fail.

Ray Stanton and David McHattie have secured backing for their logfiller software company

For years now, economists have been saying that Jersey is too dependent on the finance industry and should diversify, investing in other sectors. But the unanswered question remains: which sectors?

In 2013, in an attempt to encourage economic growth, States Members agreed to the setting up of an 'Innovation Fund'.

They also agreed that the sum of £5 million should be transferred from the States' consolidated fund to set up a pot of money which could be loaned or granted to businesses and entrepreneurs.

One of the priorities was to create new jobs for Island residents at a time when unemployment was relatively high. Another priority was to ensure that this substantial sum of public money should be properly monitored.

No one wanted to see businesses walking away with thousands of pounds of States funding with nothing to show for it.

The board who would oversee the fund had to be seen to be robust, with a balance of non-executive private- and public-sector board members, with the ultimate decisions made by a States minister.

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The current board, chaired by lawyer Tim Herbert, includes experienced businessmen and private-sector members Tim Ringsdore, Aaron Chatterley, Peter Shirreffs and Dave Allen, and from the public sector States economist Dougie Peedle, Economic Development chief officer Mike King and an officer from the Treasury.

What has happened so far?

'Innovation' is an easy word to roll off the tongue, but quite difficult to achieve, it seems. Since January 2014, when the board first began to meet on a monthly basis, about 40 applications have been considered, but only four applications have negotiated through the process to obtain their request. To date, £900,000 has been loaned to three businesses, with a £500,000 loan to another about to be finalised.

Board chairman Tim Herbert observes that whereas there is no shortage of enthusiasm, delivery is 'a great deal more complicated' and undoubtedly time-consuming.

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'At our first board meeting, we had 17 applications to consider, some going back a long way because the fund had been discussed for several years before it was set up. Since then, we have had another 25 applications,' Mr Herbert said.

One thing he is keen to stress is that the board acts as an advisory body and is not the same as the 'Dragon's Den' of television fame.

'I review every application in quite some detail and categorise them, and then the board also sees every application,' explained Mr Herbert. 'If an application looks promising, one of the non-executive directors will kick the tyres in terms of cash flow, costs, budgets and so forth, and that director will then act as a champion for that applicant.

'Quite often there will then be a formal presentation to the board, and if the green light is still flashing, an economic impact assessment is carried out by the Economics Unit.'

That assessment questions not only how realistic is the business plan, but whether the venture is likely to result in new jobs in the Island and whether it is likely to continue operating in Jersey. It is on that business that the minister will make the final decision.

Who is the fund for?

Clearly this is not a process for the faint-hearted, and applications are expected to have a certain degree of sophistication and be looking for a minimum loan of about £60,000, up to the maximum of £500,000.

Loans agreed so far have been at a rate of interest slightly below what a bank would charge and, because they are repayable, should enable the fund to be self-sustaining. No grants have been approved so far, and 'gifts from the public purse' are not what the fund is designed for.

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However, there seems to be no limit on the kind of businesses that will be considered, although currently the emphasis is on the digital sector.

'We've had quite a variety, including technical and industrial, IT, cooking, sport, tourism – a wide range,' said Mr Herbert. 'Quite often the idea is good, but it has not been planned as an established business. That is where advice from Jersey Business comes in, particularly for small organisations.'

One of the questions businesses are likely to be asked is why they have come to the States for funding.

'I would not like us to be seen as a last resort and I am pretty disappointed when someone says they have not tried anywhere else. Entrepreneurs should be looking at every opportunity.'

The three projects which have made it through so far include a new product (a portable travel cot), an IT professional services booking and billing system, and a digital process that analyses desktop performance data.

The owner of the latest business to receive assistance, which also has a digital element, is not a Jersey resident, but the 'inward investment' will create jobs in the Island, said the chairman.

'It is all about stimulating and diversifying,' explained Mr Herbert. 'It does not mean that a non-Jersey owner cannot bring an application. But it does need to be innovative, and there needs to be some passion. The team or individual has to be committed.

'I am encouraged when someone is turned down and then says that they will go away and prove us wrong. People have lots of bright ideas, but being able to turn it into business reality is something else. Without real enthusiasm, it is almost fatally flawed.'

What happens next?

The original States proposition foresaw the fund branching into private equity investment. 'That's the plan, but the Public Finances Law does not permit it at the moment,' Mr Herbert said.

'We support the idea, but the question is how and what it will look like if we have to the ability to take equity stakes. Culturally it is a big step to take and we have been thinking about it and looking at different ways to do it. For the time being, all we can do is keep the door open.'

So how successful has the Innovation Fund been so far? 'That is for others to judge,' he said. 'We have tried to be sensible and encouraging, but we are mindful that it is public money. Some may say that we could have recommended more applications, but we have to look at things carefully.

'For me, success would be if someone took out a loan in 2015, by the end of the year had employed ten people, and then the following year asked to repay the loan because they needed to secure a larger loan through private equity. That would tick every box.

'I do think that having the States working with the private sector is a good notion, using the expertise – especially from the finance sector – to ensure an informed decision. We hope the States are encouraged that a number of pairs of eyes are looking at this.'

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