Examining the Innovation Funding Lifecycle

Most firms that apply for public innovation funding are rejected, yet nearly everything we know about these programmes comes from studying the winners. This report widens the lens, examining Innovate UK (IUK) funding as a three-part lifecycle: which firms enter the applicant pool, how firms respond to rejection, and what funding changes for those that receive it, with particular attention to startups and AI new ventures. Drawing on IUK application records from 2017 to 2024, linked to company, venture funding, publication, open-source and employment data, we combine a descriptive analysis of selection into application with a regression discontinuity design that provides causal evidence on the effects of rejection and funding. Entry into the funding system is highly selective: AI startups based in particular regions, with prior venture funding, university origins or connections to IUK communication channels are more likely to apply. Rejection does not drive firms away. Companies that narrowly miss funding reapply quickly and are more likely to win subsequent awards, although among startups rejection leaves a longer-lasting mark. 

We find that every £1 of IUK funding is associated with approximately £1.68 in additional private venture funding. Far from displacing private investment, a grant draws it in: winning raises both the probability that a startup subsequently attracts venture funding and the amount it raises, with funded startups raising on average 5.9 times more than comparable unfunded ones. The evidence is less clear for publications, open-source activity, R&D hiring and survival, suggesting that the main visible effect of funding operates through private finance rather than other forms of firm output. The findings imply that the reach of public funding is shaped well before any grant is awarded, and its effects continue well after: IUK could widen its funnel by reaching startups that lack the connections that drive application, and encourage rejected startups to return. Above all, since the clearest effect of a grant is the private capital it attracts, IUK funding may be best understood as a lever for mobilising private investment in young innovative firms. 

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