Innovation Fund: scrapping it would be a "massive loss"

Monday 23 January 2017

Two success stories from the States' controversial Innovation Fund have spoken out in favour of the scheme, claiming that it would be a “massive loss” to Jersey’s economy if it were to go.

The Fund came under heavy fire last week when a deeply critical report by the Comptroller and Auditor General was published, suggesting that the fund was mismanaged and may lead to losses of up to £1.4 million of taxpayers’ money. Senator Philip Ozouf – the former Assistant Chief Minister who had responsibility for the fund since at least January 2016 - resigned over the scandal.

But Rupert-Langly Smith, founder of Proviz, a high-visibility clothing specialist who received a “significant” loan from the Fund, claimed that the company, “...probably wouldn’t be in the position we are today without the loan.”

“It’s hugely helped support us in the growth years of our business because you’re not going to get any bank financing. A young business in a post-credit crunch climate – banks don’t want to touch them,” he told Express.

It was a view echoed by Catherine Curtis, whose company StumpyDog Innovations received a £60,000 loan from the States to create ‘BabyHub’ – a portable travel cot that won a UK-wide award last week. 

Pictured: BabyHub portable travel cots, which couldn't have been made without the Innovation Fund's support. (Photo: Catherine Curtis)

“Conventional bank loans are no longer available to new businesses, and we had already raised funds through private investors [before applying to the Fund],” she said.

The local designer, who has Asperger’s Syndrome and had been studying for a design degree as a mature student, added: “The funds helped with finishing product development and starting promotions, for example: towards a Jersey founded product becoming a finalist in the British Inventors Project 2016 and semi-finalist in Sir Richard Branson's ‘VOOM 2016’ out of about 10,000 applicants.”

Whilst both declined to comment on the management of the Fund, Mr Langly-Smith maintained that the application process had been "rigorous" involving submitting an "...in-depth five-year forecast justifying the predicted growth of the company," and setting out all possible costs.

His company is currently enjoying a good deal of success, having grown 300% last year, and expanding into the US with a second warehouse to compliment their existing one in Christchurch.

But with both companies’ production taking place off-Island – in China and Italy in the case of Proviz – some Islanders have raised concerns that income benefits are not being reinvested into the Island’s economy. One commented on social media, "...this Innovation Fund, besides being good for the few, what do these projects do for the Island? There's no new factories, big employment opportunities, where will tax be paid?"

Although he’s operating a two-person team on the Island, Mr Langly-Smith said that while tangible benefits would not be immediate, he aims to recruit "20, 30, maybe 40 people" in the coming years to help staff Proviz’s Jersey-based headquarters.

Pictured: St Mary resident Catherine Curtis, founder of StampyDog Innovations, which received a £60,000 Innovation Fund loan. (Photo: Glen Perotte)

Mrs Curtis, meanwhile, responded that she "would love to make [BabyHub] in Jersey," but lamented the production costs.

"It's a mass market, EU safety tested product. To set up a factory here for production would take millions," she said, before adding that she would not rule out future opportunities. She commented, however, that the company uses Jersey businesses services, and that shareholders - whose income will be taxable - are also based in Jersey.

The key advantage, both concurred, was that the fund “should help diversify Jersey’s economy.”

Not only would this promote Jersey to a more varied portfolio of international brands, but would allow the Island to become less reliant on finance – an industry which could be hit hard if there were to be another credit crunch, Mr Langly-Smith explained.

It would also provide hope for Jersey schoolchildren who wish to remain on the Island, but feel discouraged by the prospect of a career in the finance sector, he said.

“I used to get jobs in the finance industry in my summer holidays and I would find it incredibly boring. I’m sure there are loads of kids already working in the finance industry thinking, ‘I wish there was something else going on in Jersey.'"

While the two business owners agree that scrapping the Fund altogether would be a “massive shame”, they both have reservations about its current specifications.

"I think there needs to be an Innovation Fund, but it should be based on investments rather than loans. Providing loans to start-ups is unrealistic as most will fail. By investing, the States would have the opportunity to recover their losses through shares in the businesses that succeeded," Mrs Curtis explained.

Mr Langly-Smith felt similarly, adding that Jersey should take inspiration from the UK's Enterprise Investment Scheme (EIS), which looks to incentivise investments in small companies through a series of UK tax reliefs.

“There are a huge amount of wealthy people in Jersey, and a lot of them have done extremely well from nothing. They would have been in the same position as an entrepreneur, and would probably like to back young entrepreneurs.”

With regards to their own loan repayments, each maintains that they're on track, with Mrs Curtis expecting to have finished paying back her £60,000 loan - with interest - by the middle of this year.