Stephen Timms – 1999 Speech at the Launch of the CBI Report on Corporate Venturing

The speech made by Stephen Timms, the then Financial Secretary to the Treasury, on 11 November 1999.

Introduction

1. Thank you for inviting me to speak to you today. Over the past two and a half years this Government has started to build a new Britain which we want to be modern and decent – a new enterprise economy open to all the talents. That’s why the Chancellor set out on Tuesday as ambitions for the next decade the goals that we should have productivity moving closer to our major competitors, a larger proportion of people in work, halve the number of children in poverty, and for the first time over half of our school leavers should go on to study for a degree.
2. For too long British investment has been too low, productivity increases too slow, the potential of new markets, new technologies and new skills too often squandered. I want that to change and for corporate venturing to fulfil its potential in the new Britain, promoting long term investment across British businesses. 

The report

1. The CBI/Natwest report into corporate venturing is a timely piece of research – highlighting the important benefits that corporate venturing can bring.
2. Compared to the US, corporate venturing in this country barely skims the surface of the investment pond. When I was in Silicon Valley, in September, I met Stephen Nachtsheim, the Vice President for Corporate Business of Intel. He told me that Intel had invested over $3 billion dollars in more than 250 companies – most of them start-ups – some working from the owners’ garage. Corporate venturing is having a big impact on they way Intel does business and is as integral to their corporate strategy.
3. Case studies in the report show that companies outside the US have also benefited from corporate venturing. Reuters, the information service provider, is helping to reshape its business through corporate venturing. 3M is using corporate venturing as a part of its growth strategy for the continued generation of new ideas, products and technologies.
4. But examples like these outside the US are scarce. The report says, many large firms still don’t really know what corporate venturing is. And that worries me.
5. We are in an era where business is changing dramatically, where the difference between business success and failure is the speed at which new technologies are adopted. British business is missing out on the benefits of corporate venturing.
6. For example, in 1997, Intel conducted virtually no business on the Internet. In 1998, their Internet business had risen to 20 per cent thanks to corporate venturing. And this year they expect to carry out a staggering 50 per cent of all their business over the World Wide Web. It is becoming ever more noticeable that in the relentless competition of today’s global markets, large Goliaths of industry who cannot defeat the quicker Davids join them instead – creating innovative strategic partnerships – or symbiotic relationships as Patricia Hewitt called it – to the benefit of both firms. 

PBR measures

1. Enterprising attitudes are necessary in both established firms and new businesses. We need an enterprising culture which reflects the attitudes across society – attitudes to risk, reward and failure, and wealth creation.
2. In the 1999 Budget we set out our intentions for a new tax incentive to promote corporate venturing. Following consultation, Gordon Brown announced on Tuesday in the Pre-Budget Report that we will provide an up-front corporation tax relief of 20 per cent for all large companies that invest in growing companies for over 3 years. This underwrites one fifth of their investment and takes into account the needs of Britain’s small high-tech firms.
3. But we don’t just want companies to invest through corporate venturing once, we want them to become serial corporate venturers. Your report drew some interesting conclusion about the success of corporate venturing. 80 per cent of alliances were still going forward. 50 per cent of firms had gone on to undertake further partnerships.
4. So our measures go further.
5. To encourage serial corporate venturing, if a corporate venturer sells its investment at a profit and reinvests again through corporate venturing, it can defer the corporation tax charge on the gain.
6. This incentive could be worth up to £100 million if businesses rise to the challenge and invest £500 million through corporate venturing .
7. A thriving enterprise economy calls for a larger number of small businesses. That is why the Pre-Budget Report contained a number of new incentives for small businesses – the backbone of our economy. But we know that investments in smaller higher-risk trading companies are more risky. That is why as part of the corporate venturing tax relief we are providing a capital write-off against income for investments that do not work. Depending on the loss, a corporate venturer will be able to get additional relief of up to £24 for every £100 it has invested.
8. These tax relief measures provide strong financial incentives to undertake corporate venturing. But, I agree with Patricia that corporate venturing is about more than money. So we will continue to work with the Department of Trade and Industry, developing further non-tax measures to help create a corporate venturing culture.
9. Your research found that 38 per cent found partners through informal Networks. While I was in Silicon Valley I went to a meeting of the MIT/Stanford Venture Lab. This is a public forum where entrepreneurs, managers and investors can meet and learn about the small firms. I hope the CBI’s programme of regional seminars following this report will start the ball rolling in the UK. But we also need to look at other ways of encouraging dialogue between established companies and new firms.
10. We need to take corporate venturing into the boardrooms of the largest corporates and into the workshops and laboratories of our smallest firms. We must get the message across that corporate venturing can provide finance, support and technical expertise to turn innovative talent into commercial success.

Conclusion

1. Corporate venturing has been a mainstream in the US economy since the 1960s and has had a big impact on the shape of their economy. Let us now grasp this opportunity to make corporate venturing a success for British businesses as well.
2. Thank you.