Interview: Ian Shott, chairman, Royal Academy of Engineering Enterprise Hub

The chairman of the RAEng’s Enterprise Hub is looking to change how UK technology businesses operate

The basement of the Royal Academy of Engineering’s headquarters, just off The Mall near Trafalgar Square, London, has a new look: a clubby one, with open spaces set out for conversation, modern artwork, and the vaulted spaces that support the building above converted into conference rooms. Smelling of fresh paint, carpeting and coffee, they are now the headquarters of the Academy’s Enterprise Hub, an organisation with the ambitious aim of changing how technology-based new businesses in the UK operate.

The hub’s founder and first chairman, Ian Shott, has had a long career both with large corporations and in starting his own businesses. Shortly to be honoured by the Academy with its President’s Medal, he sat down with The Engineer to explain how his experience and impressions of UK industry led to him setting up the Enterprise Hub.

It began with a call from the then-president of the RAEng, John Parker, to help link up with the Royal Society to manage a £7m investment fund. “I didn’t think that a professional institution should be running an investment fund and I thought the scale of the fund was trivial,” Shott said. “Moreover, I thought there was a fundamental issue in Britain that was nothing to do with money; but was to do with the very poor quality of propositions; the lack of role models; the lack of an ecosystem; the lack of proper mentors; and the lack of good case studies.” Part of this was just to do with the atmosphere around entrepreneurship, he added. “If you look at what has happened in the US, [computer industry pioneer, entrepreneur and investor] Hermann Hauser uses the phrase ‘there’s entrepreneurialism in the air’. If you go to Boston, Massachusetts, or Silicon Valley or San Francisco, I guarantee that if you go into any bar, any restaurant, any tennis club, you’ll see entrepreneurs and lawyers at different ages who have been involved in deals; and bankers and funders all talking about business; but if you go into the same places in Britain you’ll find people talking about the latest cynical article in the Daily Mail about politics or whatever. So I decided that was the problem.”

The finance scene

Shott said he knew that money was available in Britain, but when running his pharmaceuticals process research, development and scale-up company Excelsyn, he had studied the finance scene in the country closely. “The British Venture Capital Association has 450 members and I would assess that barely 100 are running a venture capital model,” he said. “The majority are running a scaled-down private equity model; the difference being private equity looks for five-year track records, order books and so on, and venture capital is about start-ups where there is no track record and they are taking a punt. Another problem is that most of those companies do not employ people who are knowledgeable in the sectors, particularly in engineering and technology. And quite a lot of those companies, because you’re managing people’s funds, are told not to invest in manufacturing, science engineering and technology. I would assess that applies to 300 of the 450.”

The RAEng was at the time setting up an Enterprise Fellowship scheme to support young entrepreneurs, which Shott had also been asked to advise on. “I thought, as a chemical engineer, this is like an experiment or a pilot study, and we can build it up into something much bigger where the key ingredient is the Fellows of the institution and not pennies in a fund,” he said. “A key part of this was the funding competitions run by the academy. We would use the Fellows to judge the competitions and we would say, being shamelessly elitist, we will only fund the very best projects or technologies with the best individuals that we really believe could be creating and driving a business even if they wouldn’t be a CEO.”

The winners of these competitions are taken under the wing of the Enterprise Hub, and appropriate academy Fellows act as mentors. “To run start-ups you need to have a certain risk tolerance,” Shott said. “If you’re going to deal with risk you have to have mechanisms to mitigate it. These are basic engineering principles – engineering is the obviation of risk – so by using some screening to get the best people; by giving them selected mentors who are the best people in the world they could have helping them; by giving them funding and training; and introducing them to funders, we’re creating a landscape and ecosystem that will mitigate risk and accelerate progress.”

Shott is very serious about being elitist. Only a small proportion of competition entrants are invited to interview stage, where they are expected to present their technology idea, team and business proposal to a panel of up to a dozen Academy Fellows. It’s daunting and it’s supposed to be. “It’s a rigorous and ruthless screening programme,” Shott said. But the idea is to create

an entrepreneurial atmosphere to rival the successful ecosystems of the US; to create companies that can demonstrate success and grow quickly. “If we litter the pavement with failure that’s not going to get us there very quickly, so I’m looking to scatter success as quickly as possible.”

Company growth in the spotlight

Company growth is obviously an important issue for Shott; it’s one he faced with Excelsyn and that he returns to frequently. “Britain was at the forefront of all this in 1899 but had completely lost the plot by 1999. We kind of started again in baby school and everyone was talking about the language of the ‘valley of death’ and start-ups, but the real problem is the lack of scale-up,” he said. “We need to be helping medium-size companies become more ambitious. I was a MacRobert Award judge for four years and, each year, of the top eight companies, half were SMEs and half were big. And when we interviewed the SMEs, often they didn’t know what to do to get beyond that £10-£20m size. They didn’t know whether the best thing to do would be to get out and sell, and none of them thought they should be out buying other businesses and becoming a half-billion-pound company. I see this with companies I deal with at [investment company] Shott Trinova; most of them are devoid of ambition or structure to get much bigger.”

Shott said he’s been successful with the companies he supports at Shott Trinova: “In my portfolio, companies are growing at between 35 and 60 per cent per annum compound.” And he’s confident the Enterprise Hub can also have success. “In three-and-a-half years, our 52 mentees have hired 167 people and raised £33m. I’ve lined up all these companies of different types – not all VCs, there are crowd funders and banks or parts of banks – and there is £1bn of free available cash there to be spent. Compare that to £7m with the Royal Society, which has now been taken over by [Hermann Hauser’s] Amadeus portfolio, which is much more sensible. We are funding the Enterprise Hub at £1-2m, so that can leverage £1bn or more.

“We’ve created, I think, a new model but we have limited capacity here because we only have 1,000 Fellows and I believe only a quarter of them are capable and competent to be mentors. A pure professor of astrophysical engineering probably wouldn’t be any good; somebody who is full-time running Rolls-Royce doesn’t have the capacity; an R&D director who might never have started a business or dealt with banks wouldn’t be much help. But I’m happy to share the model and if we think of the world of opportunity as an iceberg, we’re the tip.”