Published October 29th, 2018
by Steven Clark

A lively discussion on LinkedIn spurred on by a “Chief Storytelling Officer” and his refusal and/or inability to pay for a private lease had me all worked up about funding a few weeks ago. Instead of making a broader point about inflated property prices and the difficulty this has caused him in fulfilling his “vision” of a “video studio in Edinburgh”, the amicable Mike McGrail was apparently enraged by the notion that he should accept sole financial liability for a startup that would primarily exist to make him money. Posting a LinkedIn video to his cadre of occasionally obsequious followers, he seemed to claim that his intention of allowing charities and third sector orgs to use these proposed facilities for free should entitle him to funding of some description:

“Businesses get money thrown at them all the time in this city, businesses that I know, fine well, have got very little chance of ever turning a profit. But then, somebody has a creative idea – to help the community – and it falls flat on its face because, actually, it’s not easy to access £20,000 when you’re starting out. It’s just not.”

For now, let’s leave aside how “creative” his idea really is and how much difference it would make in terms of “help[ing] the community”. Let’s also ignore the fact that Mike’s vision has, charitably speaking, only existed for the better part of 5 months. In his blind rage, Mike has managed to make a decent point: why do public bodies in this country throw money at what some would consider unprofitable businesses? Maybe more importantly, why are they also giving handouts to what are supposedly already hugely profitable enterprises?

If you don’t know, Scottish Enterprise provides a number of avenues for every size of business to fund things like development of digital collateral, securing jobs in specific regions hit by economic downturn, facilitating the creation of products they consider innovative and so on. At time of writing, there’s the By Design grant worth £2,000 to £5,000; RSA grants worth between £10,000 and £2.5 million; three different innovation funds; grants for long term projects; grants for R&D; and many many more. It’s important to note that some of these Scottish Enterprise grants appear to be funded in part by the European Union, so it’s likely that parts of this post will only be relevant for the next 5 months or so.

It’s going great, folks

Now I’m not one to do research when I could be drawing farting arses but while working on this piece I did consider the possibility of filing a Freedom of Information request with Scottish Enterprise to get a broad idea of the grants that have been awarded over the last few years. Luckily I don’t have to bother because someone has already requested much of this information.

We’ve added to the data they’ve provided by checking which of these companies are still trading as of October 2018 as well as noting down their SIC codes and company numbers. Between 2012 and 2016 Scottish Enterprise awarded around £354 million to private companies, excluding all the non-profits, societies, sole traders, royal charter companies, etc listed in the original spreadsheet. Of that £354 million, £39 million went to businesses that are no longer trading as of October 2018. That gives them a failure rate of around 11%, more or less in line with the UK business death rate of 10.5% – 11.6% provided by ONS during this period. That failure rate drops to 6% for RSA grants, usually awarded to safeguard jobs, and rises to 13% for SMART:SCOTLAND grants, an innovation grant most often awarded to biomedical and scientific research organisations. Remember, this by no means represents a full picture of all the monies awarded to private industry by the government during this time in Scotland. A £6 million fund was just announced to fund a network for IoT products and initiatives like Scottish Edge and Entrepreneurial Spark also receive government funding and don’t appear in the original data provided, possibly because funding of this type may not be facilitated in any way by Scottish Enterprise. This may be part of the £2bn of planned funding the newly founded Scottish Investment Bank will endow the private sector with over the next decade, with some saying that that figure should be closer to £20bn to make any real impact.

Even though the figures above show Scottish Enterprise has a decent track record investing in private industry, it’s worth nothing that Mike’s hypothesis hasn’t exactly been disproven. Naturally more of the businesses that were awarded grants in 2012 are going to have failed or be dissolved by 2018 and just because some aren’t yet doesn’t mean they have or ever will turn profits. I’m hoping to take this data and turn it into some kind of visualisation tool, grouping SIC “Nature of business” codes into rough categories so we can see performance across different industries. Looking at the SMART:SCOTLAND grants alone and comparing the companies with IT and software related SIC codes against the rest, they have a somewhat higher rate of businesses no longer trading. While more time with the data will be needed to prove this conclusively, based on the relative youth and volatility of the tech industry, it stands to reason that Scottish Enterprise would have more success investing in businesses that produce physical products over anything digital.

In my experience, working in creative industries, grant money is occasionally used to incentivise the purchasing of design or web development services. This is why agencies love it and have already wasted plenty of bandwidth credulously promoting and pushing the aforementionedBy Designgrant. It would be cynical of me to suggest that grants like this often allow agencies to charge over the odds in order to over-design and over-engineer cumbersome websites, usually on more advanced technologies than these clients actually require, artificially inflating the value of their services and ostensibly forcing these organisations into long term support contracts due to their obvious inability to manage and maintain such sites, so I won’t. Instead, I’ll just link to this video featuring a screaming cowboy. This scenario will continue not existing in the future now that Google Digital Garage is farting around major Scottish cities in a branded bus, meaning it’s only a matter of time until everyone can code and make their own websites anyway.

Advanced Digital Garage graduate

So now we’ve established the variety of choice in grants available to businesses purporting to be innovative, let’s backtrack a bit and talk about what that means. Scottish Enterprise has a rather loose definition of what it considers innovation, if this content from the R&D grant page is anything to go by:

“Your project must represent a significant innovation for the company concerned and significant risks should be associated with the challenge of developing a new product, process or service. It’s got to be new. We don’t support projects where the work has already started or commercial contracts are in place.”

Innovation isn’t really defined in any of the grants with “Innovate” in the name but some detail on the SMART:SCOTLAND grant page does provide a little more context:

“Your project must exhibit: An advance in technological innovation for the UK industry or sector concerned.”

It’s important to consider how Scottish Enterprise defines this concept as, when talking about digital at least, the term “innovation” can be seen as the Coca-Cola Classic to “disruption”s New Coke – another word floated around to describe a myriad of different concepts, very few of which are new or interesting. Since the rapid growth of the newest tech bubble and the heavy monetisation of the internet, businesses working in either sector tend to go through cycles of finding new descriptors to adopt for conventional practices in attempts to elevate them and, in the process, manage to obliterate any meaning these words may once have had. Thanks to this, for many people, “Innovation”, “Disruption” and “Digital Transformation” are now completely ethereal concepts, all of which can be applied in some way to any business without confusion or protestation. This is why the notion of funding something like a video marketing agency and their studio premises is seen by many to be unobjectionable despite the fact independent videographers, production companies and “my nephew with a camera”s have existed and completed essentially the same work for decades, just not primarily on the internet or using digital methods. How do you define what’s innovative in a market that has quite deliberately robbed the term of any meaning?

How to disrupt

I have actually been contacted by one such grant recipient in the past. After a throwaway tweet about this story reporting that £100,000 of grant money had been awarded to a car lease price comparison website product (the beta of which has now launched but was just a basic WordPress website when I originally posted the tweet), I received an email from a David Vallance, who is probably not one of the serious looking beardy tech men in the photo used for the article. My admittedly flippant and poorly researched tweets meant David felt the need to set me straight:

“LeaseFetcher is a comparison site for car leasing. We accept pricing feeds from our 20 current partners (hopefully closer to 50 by launch) and allow users to search/compare/filter cars/providers/deals. […] Is it a bad idea? Well, that’s up for debate. Our MD, Will, tried to lease a car and found the lack of comparison tools infuriating. He had to make a serious financial decision almost completely in the dark. Hopefully, we’re doing our bit to help motorists make more informed buying decisions. I’m obviously disappointed that you think it’s a dumb idea. We’ve invested a huge amount of time and money into the project and the feedback we’ve got from leasing brokers and market research groups has been really positive.”

Disregarding how online you have to be to find a tweet that doesn’t mention your company posted by a complete stranger with only a few likes, David is right to say that the merits of awarding funding to his project and others like it is up for debate. His email – most likely cannibalising an existing press release – does prove that, to those with strong belief in their idea, public perception is important. The team behind Lease Fetcher clearly saw the awarding of funding as validation that their idea had some merit – as evidenced by the PR push – and Scottish Enterprise possibly saw an opportunity to create a few new tech jobs in Glasgow. All that said, without more knowledge of the project it’s hard to make a judgement on how something like this qualifies as an “advance in technological innovation” beyond having a slicker brand, a nicer UI and more partners (maybe, hard to tell) than the existing competition. Let’s say it doesn’t, why then does an iterative improvement on something that already exists have a right to grant money? Also sorry I still haven’t replied yet, David.

Now you may be thinking, “Steven, you disgusting greasy champagne socialist, why are you so against the concept of public funding?” I’m not, generally speaking. The point expressed by some when talking about things like Scottish Enterprise grants for the private sector is that they create employment and help to stimulate the economy, both of which appear to be true. If you personally believe it’s the government’s responsibility to do both of those things, the concept of a national job guarantee has been gaining some ground in recent years and involves the government taking a more direct approach. These policy proposals typically suggest that public organisations fill gaps in employment by developing programs that create or facilitate something in the broad public interest e.g. infrastructure projects, construction of social housing, etc. I would argue something like this would be a preferable alternative to a practice that involves the Scottish government helping to line the pockets of private industry owners and foreign bankers already making huge profits to guarantee jobs come to or stay in Scotland, many of which are now probably much less guaranteed because of the approaching darkness.

Whatever you think of Scottish Enterprise grants, this funding does not amount to a huge portion of existing public spending in Scotland. I also don’t doubt for a second that some smaller companies need these grants to start up, grow/maintain their labour force or bring new products to market. It is, however, more than fair to be skeptical and critical of the government’s ability to determine which of these companies and products has a right to exist and which are producing products, particularly digital ones, that could be considered “innovative”. When it comes to larger companies, the Scottish government are doing what all major states do now to prop up our tenuous economic system, making the prospect of opening a location in one of their major cities more attractive through financial incentives. In Scotland’s case, this is usually about utilising available design and development talent, attracting the likes of Morgan Stanley and Amazon to house digital teams here, presumably motivated in part by an effort to rebrand the country as some kind of Euro Silicon Valley (something they already tried with Silicon Glen), away from all the whisky, shortbread tins and Tam O’ Shanter hats.

1950s Scotland, in a land before innovation

This becomes particularly hard to swallow when you consider the wealth of PR wank dedicated to convincing us that some of these large organisations are paragons of industry run by self-made entrepreneurs. The relatively paltry £1.15m given to Brewdog in RSA grants between 2012 and 2016 may be nothing compared to the full £52m raised through their Equity for Punks initiative but it begs the question of why they even needed these grants in the first place, considering their continued success and profitability. That’s even if you ignore the fact they have a history of lying to secure funding and one of the founders apparently already considers raising corporate cash to be “selling your soul to the devil”.

All’s well that ends well – looks like by being mad on the internet Mike got what he wanted and a connection has offered him less objectionable rates for studio space. In what was, I’m sure, a rare moment of violent uncontrollable anger, Mike managed to hit on something that plenty of people know about but not enough people talk about, albeit from a place of self-satisfied envy: that some of the investments in private industry, large or small, made by public bodies can seem questionable on the surface.

The Scottish Investment Bank do publish annual reports, presumably detailing some or all of their investments and their impact, but despite evidence that these exist I’ve been unable to find them anywhere. Other documents detail investments over £100k but it looks like to get any kind of detail, the best option for now is a Freedom of Information request. Transparency in this area is a concern but the lack of availability for many of these files seems to be because Scottish Enterprise is in the middle of a new website project, with old URLs to these documents being redirected to landing pages instead of somewhere where this information is easily publicly accessible and searchable. Let’s be nice and assume this is just incompetence instead of malfeasance.

As I said already, for skeptics like myself and Mike, some of the problem is allowing Scotland’s government officials and business elites to determine what constitutes “innovation”. I obviously can’t speak to the efficacy of funding of this type when it comes to things like biotechnology, computing components and other things built and manufactured by people much smarter than I am but I can speak with some authority when it comes to digital. With that in mind, digital innovation for its own sake is not automatically a good thing and, as we’ve seen in more recent years, usually leads to a culture of solutionism – the creation of solutions looking for problems – as well as glut of integrated (or illegally web-scraping) services acting as middlemen for larger organisations or companies that actually make products. In the US, investment in these kinds of supposedly cutting-edge products and services is largely left up to venture capitalists, wealthy individuals or investment funds created by profitable private organisations, meaning it’s their wealth they’re gambling, instead of public funds. Considering these obscenely prosperous powerhouses of American entrepreneurship are now investing huge sums in wifi connected machines that squeeze bags, chat apps used by criminals and crypto enthusiasts and reinventing the vending machine with apps and AI, maybe we shouldn’t be so credulously following their example (or giving some of them any more money, for that matter). At the very least, could we not only make grant money or subsidies available to businesses without exploitative labour practices, something we already consider when procuring private industry to complete public projects?

It might be a better use of public funds to attempt to solve one or two of the problems we definitely know we have, instead of some of the problems digital companies in Scotland are currently hard at work inventing.

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by Steven Clark

Steven is a designer/developer and wannabe intellectual with an obsessive personality and too much spare time. Don’t follow him on Twitter.

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