How we’re driving employment and investment in clean tech innovators – Matt Friend
Comment by Matt Friend, Head of Strategy at Energy Systems Catapult.
Unleashing the economic potential of SMEs and innovators is a central pillar of our mission. We pride ourselves on the support we provide to clean tech innovators in the UK and abroad, helping them to realise their potential and bring their products to market.
Our deep-rooted expertise in the energy sector means we’re well placed to help innovators better understand the market, refine their value proposition and business models, and secure investment through our Energy Launchpad. Our pioneering Living Lab of over 2,000 digitally connected homes is opening new doors for innovators, helping bring products and services to market faster and more efficiently. While our markets, policy, and regulation team is helping government and industry to unlock the system-level barriers to innovation.
Quantifying our support
In 2022/23, we ‘road-tested’ an in-depth quantitative assessment of our impact in unleashing the potential of innovators. Supported by evaluation experts Winning Moves and Belmana, we developed a quasi-experimental approach, to understand the relative performance of SME innovators that had received in-depth support from the Catapult vs. a comparison group. Using a technique called ‘propensity score matching’, we were able to create a statistically matched comparison group of non-supported businesses that are appropriately comparable to those we have supported along a range of relevant characteristics.
To ensure our comparator group was appropriately similar to the SMEs supported by the Catapult (and allow statistical matching) we looked at 101 SMEs Energy Systems Catapult has provided in-depth support to since 2018 and created two alternative comparison groups: SMEs that applied to Catapult programmes but were unsuccessful; and SMEs that had only received universal support. For completeness, we also looked at the performance of SMEs supported by the Catapult vs. a wider business sample of tens of thousands of SMEs.
We then used a ‘difference-in-differences’ technique to [try to] compare performance in the year we supported the business and over the following two years on a range of business outcomes – employment, assets, investments raised, and turnover – using data from public sources, collated through the Beauhurst database. This difference-in-differences technique allowed us to control for confounding factors.
The analysis found that SMEs supported by Energy Systems Catapult grew employment faster, raised more investment, and had a greater increase in total assets than statistically matched SMEs that had not received in-depth support from Energy Systems Catapult.
SMEs supported by the Catapult grew employment 22% higher than SMEs in the comparison group in the year we supported them, and 63% higher in the following year, with results significant at the 5% level. Sample sizes for growth after three years were too small to allow a robust comparison.
Figure 1: change in employment following support from the Catapult
Growth in total assets was higher for SMEs supported by the Catapult than both the statistically matched comparison group and the wider business sample – with total assets growing on average by c.£100,000 more for SMEs supported by the Catapult than the comparison groups, in the year following support. However, this positive result was not significant at the 5% level (in part due to high variability between businesses, and small sample sizes as a result of relying on publicly available data).
Figure 2: change in total assets following support from Energy Systems Catapult
SMEs supported by Energy Systems Catapult raise more investment on average than the comparison groups both for the year of support and for subsequent years. The total fundraisings raised across all years by the sample of businesses supported by the Catapult is over £49 million, substantially higher than for the two comparison groups which only raised around £15 million and £22 million, respectively. This is mainly because more of the companies the Catapult has supported go on to raise investment than in the comparison group (rather than raising more money per company). Given the small sample sizes for fundraising data and the discontinuous nature of fundraisings, however, a robust difference-in-differences analysis isn’t feasible.
Unfortunately, the publicly available data sources we used in this study did not allow us to compare changes in turnover between SMEs we have supported and those in the comparison groups: small companies in the UK are not required to report a profit and loss account to Companies House, and as a result we were only able to find and statistically-match turnover data for 5 SMEs across the supported and comparator groups.
The positive results presented here indicate that SME innovators to whom Energy Systems Catapult has provided in-depth support grow faster and raise more investment than statistically matched companies to whom we did not provide in-depth support.
As we continue to support SME innovators, the sample size available for this kind of quantitative assessment will grow, allowing even more robust analysis and quantification of our impact. We plan to repeat this analysis on a bi-annual basis.
We are exploring ways to overcome some of the limitations of using public data (including the fact that SMEs are not required to report data on turnover to Companies House). For example, we are investigating the use of finer-grained data available through the Business Structures Database to help us both increase the sample size for which matched data is available, and to see if we can access data on other important outcomes for the SMEs we support, including their growth in turnover.
We look forward to sharing the results of this work in future Impact Reports.
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