Do grants enable or stifle Innovation?

This week we are promoting two articles about innovation and funding. These were originally written by Richard back in 2015 and have been slightly adapted to ensure they remain up-to-date.

There's an old proverb that gets twisted around a lot in the funding world, and it fits this question perfectly. Give a company a fish and you'll feed it for a day. Teach a company to fish and you'll feed it for a lifetime.

It's the questions we get asked more than almost any other by founders - Where's the funding? What grants are out there? The honest answer isn't as simple as a list of schemes. It depends entirely on why you think you need the money, and what you're actually planning to do with it.

Innovation Funding

The specific question we’re most commonly asked, is what funding is around for innovation. There are so many answers to this question, but ultimately it goes back to why you need funding and what you want it for. It’s easy to slowly drift into opinion at this point, but we’re not going there - we’re going to stick with facts, and these are the hard ones. So, here are a few pointers to maybe raise your eyebrows a little and think about whether chasing funding is right for you. 

The first statement we’re going to make is that companies that don’t need funding tend to be a lot more successful at innovating than those that do. This may either sound obvious, or alternatively may stink of the age old “rich getting richer” analogies - but it’s a fact of life, so we need to get our businesses in a position where they’re not grant dependent. At this point you may be thinking what about research organisations? Yes they do need funding, but those who can provide their own (or who have established connections with funding sources) are infinitely more successful.

The importance of an innovation portfolio

Let’s look at this in a little more depth - what we need to consider here is the portfolio of innovation activities within an organisation. Companies that have a philosophy of growth through continual innovation and can afford to finance and resource this are more likely to have a wider portfolio of innovation projects. Newer companies and those with more limited budgets are more likely to have a very narrow portfolio, often focused on a single activity or project. Putting this as simply as possible, betting on ten horses  is much more likely to present a return that just betting on one. 

This is the precise reason that the return on investment on innovation projects from the public sector is low (discussed in our coming article this week - Should the UK taxpayer fund YOUR innovation). Public sector support programmes either target or naturally tend to attract the smaller and new-start companies, and as such, often don’t break-even when considering the real return on investment. Many would argue this, but having worked on public sector project and audits, I have seen how the figures presented for projects can vary from the real commercial impact. Measures typically tend to address factors such as GVA and jobs created - much of which may well have been achieved without the public investment.

Innovate UK support

Either way, let’s get back on track. In my personal opinion, the only direct “innovation grant” that has a significant impact on specific and single innovation projects is the InnovateUK Smart grant. The main reason for this, is that it sifts out the stronger projects, by demanding significant match from the applicant. Of the Smart grants we’ve helped secure (approximately 20 in total valuing c. £2.5M) the majority have resulted in significant commercial impact, which wouldn’t have been otherwise achieved. In most cases, it’s also led to the company investing more of its own money in R&D and Innovation as a result of the benefits realised. 

2026 note - unfortunately, Innovate UK grants have gone significantly downhill. The market now appears to be dominated by grant and bid writers, suggesting that the best projects don't win – the best written projects claim the prizes. In many rounds, the pass mark has been over 90%. Do your research here as many people aren't happy with this route anymore.

There are many examples of smaller projects having an impact - including those through ERDF and academic funding sources - but the return on investment is significantly lower. The main reason for this, is that the sum provided tends to range between £3k and £5k, which obviously limits what can be achieved.  

So let’s go back to our main question and our fish proverb. What’s the difference between the Innovate UK grant and the smaller grants - other than the value? The main thing to note here, is that the smaller grants tend to be used to buy something - consultancy, product development, etc. You get this “something”, but you learn little other than whether your idea works. If you’ve needed funding to get this “something”, you’re now needing to access more finance for the next stage. And please don’t think that because you’ve spent a £3k grant on a prototype, the investors will come flocking - based on experience, the chance of that is probably simmering at just under the 2% mark. 

The Innovate UK Smart grants though - along with those who spend smaller grants in a smart way - allow you to learn. You’re not just buying the proverbial fish, you’re buying the best rod you can get, with top notch lessons. This is precisely why companies coming off the Smart system tend to invest their own money in more corporate innovation and R&D projects. The same can be said of companies that invest their smaller grants in training to improve their innovation skills, capacity and approach - rather than buying in a specific and singular solution which may only lead to further barriers. 

Is the best way to find another way?

In a nutshell, larger companies like grants, but if they can’t have them, they find another way of doing what they need to do. This is the mentality that the smaller and newer companies need to adopt to become successful in innovation. Investing in skills and development is often a much more robust investment than investing in third party support for a specific innovation project, and can help organisations become innovative about how they approach problems and opportunities in general - the rest will follow. 

The bottom line here is if you think money is the solution to everything, the chances are you're totally wrong. There are many ways to solve every problem – having a Plan B and a Plan C it's essential, because even if you could get funding, it will probably take you a long time. And in that time, think what progress you could have made?