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Steve Phillips – CFO at GovGrant – on life in the world of R&D and Innovation

Q. You’ve had a number of senior roles in private equity-backed businesses, and in private equity, so what was the attraction of joining GovGrant?

I’ve always loved working with SMEs. The passion and energy I get from working with smaller businesses is far greater than with larger companies. GovGrant works with innovative SMEs who are trying to do something different and push the boundaries and that is a key attraction for me. We are operating in a sector that’s growing at 20-30 % a year, driven through greater awareness of the incentive schemes and the benefits they bring.

That is catalysed by the growth of SMEs in general in the UK and, with those SMEs comes more innovation, and I really enjoy helping our clients with their journey.

I prefer being part of the senior management team of a small business, rather than a smaller cog in a large firm, and it makes a difference that we have great people within GovGrant who are fun to work with. I need to wake up and feel enthused about going to work and GovGrant gives me that feeling.

2. What are your aims and ambitions for GovGrant as part of the senior management team here?

I think GovGrant is part of a very nascent industry. Our sector, which helps firms take advantage of the Government’s Research and Development (R&D) Tax Credits scheme and the Patent Box Scheme, is just over ten years old and GovGrant was one of the first players in the sector. Although we are young, we already have a heritage at GovGrant in terms of our depth of experience, and we intend to be one of the market leaders.

We won’t be able to do that organically, although organic growth is key, but we will also grow through acquisitions where we widen our expertise and take on clients through acquiring other businesses that do what we do.

Turning to acquisitions, we are interested in expanding our service proposition to innovative SMEs, so we’re targeting other advisory firms helping SMEs with their innovation journey.

We are interested in acquisitions that broaden our services, for example by offering clients other sources of funding. Alternatively, we could provide in-depth skill sets around patent box and leveraging off that.

At the moment the core R&D market is populated by a large number of small players, but none of these players are scale businesses. Currently the largest firms may generate up to £10m of turnover from this sector. My expectation is that over time, the leading firms will scale up towards £50m or even more, while there will always be a small number of niche players, perhaps owner-managed lifestyle firms. I want GovGrant to be one of the scale players in this market.

We are also open to expand geographically. This sector is typically based on building networks via strong personal relationships. Smaller owner-managed businesses in say, the South West, Midlands or the North where a deep relationship with clients has been fostered, would be of interest to us, and future consolidation is likely see these niche firms joining the bigger players.

3. As an accountant yourself, how does GovGrant assist accountancy firms and why are you so keen to work with them?

I think it is a classic win-win situation for accountancy practices because they, naturally, want to offer the best service to their clients. They can do that in their core market but find it more difficult to offer a broader spread of specialist services, so by working with us you get 70 people focused on securing R&D tax credits, patent box and innovative funding for growth purposes, but they get to retain the customer relationship,

Unless accountants offer that specialism, the clients could consider other competitors or a large firm that has that expertise in house. At GovGrant we don’t do accountancy services but focus on one particular niche. We love the experience of helping these companies access funding but accountancy firms also win by giving their clients a top quality services.

Our services are relevant right across the accounting sector including the big four, although with the volume of our work will be at the smaller end of the SME . I’m not entirely sure what resources the big firms have on R&D and patent box – maybe 70 staff, but even larger firms don’t have the same depth of expertise as we do.

4. In your role at GovGrant, working with firms on R&D and Innovation, how much do you think UK business has embraced R&D and Innovation? Is there more that can be done to support R&D/Innovation and who should be doing it?

I would say that in general in the UK we have been slow to react to the growth of innovation and encourage true entrepreneurialism but this is changing. The recent growth of the venture capital funding market is one example, ten years there was no venture capital funding market in the UK of real scale but that is changing, partly through encouraging angel funding via schemes such as EIS. But comparing us with the US, where they have been doing it for 20-30 years, we are a relative newcomer to innovation and R&D.

R&D tax credit is a fantastic scheme but there is more that can be done. There is also a wider debate to be had over definition of R&D and how to expand that definition to pick up companies investing money in true growth initiatives. These are often the firms that are taking risks and need support, but the government should be take a supporting lead on it.

I’d also like to see more help for the smallest companies where they are scaling up but opt not to draw market salaries, the scheme doesn’t allow for that: 20 people working very hard in SME opt for 10K salary but they don’t get funding to acknowledge that.

In summary there’s potential for a positive story but a lot more to be done.

5. How can accountancy firms assist their clients make the most of their capacity for innovation and R&D?

There are two key tasks

  1. Information
  2. Focus

On information, the SME market is still not fully up to speed with the different funding options open to them, including R&D and it is massively important for accounting that accountants are up to speed because it is a liability issue. It is incumbent on accountants to give their clients up-to-date information, even though it may not be obviously relevant, because it will pick up clients who are on the cusp. We can help them with providing the right information to their clients

On Focus: It is easy for an accountant to do the numbers – balance sheets and financial reporting are their bread and butter. In putting innovation on the agenda they should be feeding back to the client the different sources of costs that underpin their innovation and help clients understand the areas of their innovation spend where they get better returns. We can help here.

6. How do you think Brexit will impact on the UK’s innovation and tech industries?

It’s a great opportunity for the government to do things differently. There is uncertainty right now, while the government is focused on the process of Brexit, and being a realist it is unlikely that things will change over the short term.

But looking ahead, Brexit provides a chance for the government to stand back and reposition the UK as a destination of choice for innovative businesses. Small innovative companies are considering the UK as a destination – but they want fresh ideas and fresh thinking. Those ideas can come from the private sector, but GovGrant is very keen to engage with the Government and help bring forward proposals as to what they can do for innovation and R&D.

HMRC has a working party on the R&D tax schemes, which meets on a bi-monthly basis – but it tends to focus on the day to day; establishing a more forward-thinking body represented by Govt and industry would be a good idea.

Quick fire questions

PE House or PE-backed business? PE backed businesses – it’s a proper job

You’re a brummie, so – Villa or West Brom? – The Baggies

Snow or Rock? – Snow

Pub or restaurant? – Pub

Night in or night out? – Night Out

Running or gym? – Neither, I prefer iron man (I am competing at an event on 19 August in Copenhagen)

Holiday in the UK, or holiday abroad? Holiday abroad. It’s good to see the world. Costa Rica is my next on my wish list!

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