Funding competition Transforming Foundation industries: Investor partner selection

Investors can apply to align their investments with up to £7 million grant funding from Innovate UK to make foundation industries globally competitive. This funding is from the ISCF.

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Competition sections

Description

Innovate UK, as part of UK Research and Innovation, is inviting investors to partner with us for the Foundation Industries Investor Partnership programme (IPP). Together we will align Innovate UK’s grant funding of relevant late stage R&D projects alongside your investment in UK micro, small and medium-sized enterprises (SMEs) concerned with one or more of the themes of reducing resource and energy consumption.

We are seeking investor partners that want to invest in high growth potential SMEs. The SMEs:

  • must aspire to finding solutions that make the foundation industries more competitive through reducing resource and energy use
  • will be selected in a later competition

Investor partners must provide wider business skills and experience as well as financial investment.

The Transforming Foundation Industries Investor Partnership programme consists of 2 competitions:

  1. Transforming Foundation Industries: Investor partner selection , which is this competition.
  2. Transforming Foundation industries IPP: SMEs competition, which opens in spring 2021. This will be for SMEs to apply for project grant support with a clear alignment for private investment.

By entering this competition, you are entering into a competitive process. The competition closes at 11am UK time on the deadline stated.

Funding type

Investor Partnerships

Project size

This competition is not offering any funding.

Who can apply

We seek investor partners to invest in high growth potential micro to medium enterprises that aspire to:

  • develop internationally competitive products, services, or business models by reducing energy or resource consumption
  • make the foundation industries more competitive through the use of cleaner energy or reduced consumption of materials and resources
  • address the transforming foundation industries themes in the Industrial Strategy Challenge Fund.

The ISCF definition of Foundation Industries includes cement, ceramics, chemicals, glass, metals, and paper.

The SMEs will be identified by the investor partners and selected in a later competition.

Your organisation must be an equity provider with the potential to act as lead investor in investments from £50,000 to £2 million.

We aim to appoint several investors, interested in making investments aligned with Innovate UK grants. Investments must be either direct equity or convertible loans.

You must also be able to offer other commercial acumen to SMEs, such as:

  • leadership
  • market access
  • skills or resources

You do not have to make any funding commitment at this stage. We will need your commitment to provide aligned investment where Innovate UK offers grant funding to successful applicants in the SME competition.

You must be able to demonstrate that your organisation is of good financial standing.

We are looking for mix of UK established investors with an interest in foundation industries, including venture capital, angel networks, and corporate venture investors.

Your organisation must demonstrate it has the capability, capacity and investment appetite to fund individual SMEs that aim to achieve the ‘environmentally sustainable’ objectives of the ISCF Transforming Foundation Industry Challenge.

Our preferences

We are particularly interested in investors who:

  • are willing to act as sole investor or be the lead investor where additional co-investment is required
  • are prepared to deploy their investment with a patient and long-term view
  • can follow their investment and potentially provide more financing when required with an aspiration to fund or leverage total investment of up to 3 times the original grant funding by 2025
  • can commit to helping the SMEs with international aspirations to grow and scale up
  • have relevant sector or technology-specific expertise around making the UK internationally competitive, in manufacturing products vital for our economy, in an environmentally sustainable way

How investors are selected

The process for becoming an investor partner is selective. Applications will be assessed by external independent assessors. Applicants that pass the minimum quality threshold will be invited for interview.

By submitting an application to become an investor partner, you agree to be bound by the additional terms and conditions of the memorandum of understanding which is available in question 2 of the application.

The document will not be countersigned by Innovate UK, so it is not binding, until you are confirmed as an investor partner.

Investor partnership opportunity

We have allocated up to £7 million to provide grant funding for SME projects aligned with private investment from investor partners.

The objective of this programme is to support SMEs to carry out projects that reduce energy and resource use in the foundation industries. SMEs can be from the sector itself, or from the sector supply chain.

No aid is made available to the investor from Innovate UK.

During the SME competition, businesses will identify their total funding requirement which will include Innovate UK grant funding aligned with equity investment.

If your organisation is selected to be an investor partner you will be expected to identify potential UK micro, small and medium sized enterprises (SMEs). These can be:

  • new investments for your organisation
  • opportunities currently under consideration by you
  • SMEs already in your portfolio who are looking for further investment and grant funding for a specific project element

These SMEs will be required to submit applications for funding to the Transforming Foundation Industries IPP: SME competition.

The SMEs seeking support will be required to carry out projects that meet the objectives of the ISCF Transforming Foundation Industry Challenge.

These are:

  • energy costs and optimisation such as heat or energy recovery and reuse
  • process measurement, optimisation and digitisation, such as sensor technology or digital tools
  • waste recycling, utilisation and symbiosis, such as reuse of waste or industrial symbiosis
  • new product and service development, such as new materials, new materials-based products and services, or new business models

If the SMEs are successful, you will be required to make an investment into the SME business that is the same as or exceeds the value of the Innovate UK grant.SMEs seeking support will be required to carry out projects that reduce energy use or minimise resource use in the foundation industries.

SME selection process

We plan to open the first SME competition in Spring 2021. Innovate UK will assess each invited project application using our independent pool of expert assessors and rank the assessed applications as fundable and non-fundable.

Lead investor partners will be expected to undertake their normal discussions and due diligence with SMEs of interest. We will only offer aligned grant funding to SMEs that reach heads of terms with their investor partner.

We expect that funded SMEs will be ready to start their projects as soon as investment has been confirmed in writing and after we have completed project finance checks.

SME project requirements

SMEs’ projects must start no later than the date published in the SME competition, and in finish no later than March 2024. Projects can have a duration of up to 2 years.

Total eligible project costs submitted by the SME must be between £50,000 and £2 million.

For feasibility studies and industrial research projects, SMEs could get grant funding for eligible project costs of:

  • up to 70% for a micro or small organisation
  • up to 60% for a medium-sized organisation

For experimental development projects which are nearer to market. SMEs could get grant funding for eligible project costs of:

  • up to 45% for a micro or small organisation
  • up to 35% for a medium-sized organisation

If we select you as an investor partner you will be required to lead the aligned investment into your selected SMEs, if the SME proposal is allocated funding in the SME competition. Your investment must be at least equal to the amount of the Innovate UK grant. The investment should provide suitable capital to the SME, alongside the grant, to allow them to complete their project and enable the SME to grow and scale.

The investment can be in the form of either direct equity investment or convertible loans. It can come from:

  • a single investor partner
  • a lead investor partner syndicating with other investors from within or outside of the pool

State aid

The grant is provided through state aid funding under article 25, ‘Aid for research and development projects’, of the General Block Exemption Regulation (GBER). It is the SMEs’ responsibility to ensure they are compliant with state aid rules and that they are eligible to receive state aid. They are advised to seek independent legal assurance to that effect.

19 October 2020
Competition opens
4 November 2020
Online briefing event - register to attend
9 December 2020 11:00am
Competition closes
27 January 2021
Interviews (week beginning)
5 February 2021
Applicants notified

What we will ask you

The application is split into 2 sections:

  1. Project details
  2. Application questions.

1. Project details

This section sets the scene for the assessors and is not scored.


Application team

Invite people from your organisation to help complete the application.

Equality, diversity and inclusion

You must complete this EDI survey and then select yes in the application question. We collect and report on equality, diversity and inclusion (EDI) data to address under-representation in business innovation and ensure equality, diversity and inclusion across all our activities.

The survey will ask you questions on your gender, age, ethnicity and disability status. You will always have the option to ‘prefer not to say’ if you do not feel comfortable sharing this information.

Investor summary

Describe your organisation, including:

  • what type of investor you are, for example venture capital, angel network or corporate venture
  • the model by which your organisation operates its investment activities
  • whether you are regulated and if so who the regulator is
  • your preferred form of investment, such as ordinary or preferred equity, convertible loan notes or other structures
  • the maximum amount you typically invest in any one portfolio company and the total amount of investment you are likely to make each year
  • how management is incentivised
  • your expected rate of return on investment over the next 5 years
  • the level of your current investment in businesses providing clean technology solutions for the foundation industries

Your answer can be up to 400 words long.

Public description

SMEs will be encouraged to identify and contact suitable investors from the pool during their application process. Therefore, please provide a description of your organisation that can be published on our website for interested SMEs.

You must include:

  • a dedicated email address that SMEs can contact you on
  • your website
  • your investment criteria and a brief description of the types of companies you typically invest in
  • the value you can add to investee SMEs
Your answer can be up to 400 words long.

2. Application questions

The assessors will score your answers for questions 3 to 6. You will receive feedback from them for each one. Questions 1 and 2 are not scored.

Do not include any website addresses (URLs) in your answers.

Question 1. Your financial standing (not scored)

The Innovate UK credit and risk team will carry out an assessment of your organisation’s financial standing before we decide whether to invite you to join the investor partnership programme.

Describe or explain:

  • the financial position of relevant entities involved in your investment activities, including providing financial statements for the past 3 years
  • the assets under management of relevant entities involved in your investment activities for the past 3 years, including at the time of submission of your application
  • where 3 years of historic financial statements or assets under management (or equivalent funds available for investment) are not available, provide the most recent available information (including management accounts where appropriate)
  • the regulatory status or authorisations of relevant entities involved in your investment activities
  • any investment by public sector entities in your assets under management, for example investment by the British Business Bank through its Enterprise Capital Funds programme or by British Business Investments through its Regional Angels Programme

Your answer can be up to 400 words.

You must upload a copy of your financial statements and your assets under management (or equivalent funds available for investment) to support your answer. These can be in up to 3 PDF documents. Each document can be up to 20 A4 pages long and no larger than 10MB in size. The font must be legible at 100% zoom.

Question 2. Memorandum of understanding (not scored)

You must download and review the memorandum of understanding. This must be signed and uploaded before submitting your application. Please type ‘Completed MOU attached’ as your answer to this question.

The document will not be countersigned by Innovate UK and will not be binding until you are confirmed as an investor partner.

Question 3. Your credibility as an investor

This question is scored out of 25.

Please demonstrate your credibility as an investor. Provide a summary as described below.

Describe or explain your investment strategy, including:

  • the sectors you prefer to invest in
  • any geographic constraints
  • the minimum and maximum amount of investment you typically make in each business, and the amount of investment you expect to make in each business in this investor partnership programme
  • your historic and planned period of holding an investment
  • your historic average deal size and anticipated average deal size in the future
  • your target returns (including social, environmental, economic or impact on society) and how you plan for exits
  • whether you prefer to syndicate with other investors or not

Explain how you generate returns by telling us:

  • how you grow the businesses in your portfolio and increase their value or impact on society
  • your track record in achieving successful exits for organisations you have invested in
  • failure rates and write-off levels within your portfolio
  • the investments you have completed, and full or partial exits achieved in the past 2 years
  • the value that has been created in your unrealised portfolio and your plans for exit for these companies, specifically highlighting how you will optimise financial and impact outcomes at exit

Describe or explain how your investment impacts on businesses with high growth potential. Give examples of how you and your portfolio investments have historically delivered the following objectives since you invested:

  • export growth and international expansion
  • high value job creation
  • turnover growth
  • supply chain enhancement (for example where the supply chain of portfolio investments has had a positive impact on the UK economy)
  • indicators relating to social, environmental, economic or societal impacts
Describe or explain how you add value to your portfolio investments beyond financial support, including:

  • the expertise you can bring to actively build value in a business, including the development of business skills, recruitment, supply chain development and market access and embedding impactful practices into the organisation’s business model and processes
  • how you improve the management capability of businesses in your investment portfolio during your period of investment and ensure that their impact mission will outlast any changes in ownership
  • your approach to board appointments, both in relation to representing your organisation and executive management
  • how portfolio investments have benefitted from your network in terms of increasing management capability
  • your approach to exit planning, with examples of successful and less successful exits and lessons learned or alternative approaches to realising economic and social value from investments that you have made

Describe or explain the types and level of fees that you (and related organisations) typically charge to portfolio investments, such as:

  • transaction fees (initial investment and follow on)
  • portfolio management fees
  • advisory or consultancy fees
  • executive and non-executive director fees
  • any changes planned to your current fee levels, particularly for investments in this investor partnerships programme

We will not pay fees to any of our investor partners. However, if there is a specific reason why we should provide some support to your costs then please indicate why and how those costs should be calculated.

Your answer can be up to 800 words and you can submit up to 3 appendices to support your answer. They must be PDFs and can be up to 20 A4 pages long and up to 10MB in size. The font must be legible at 100% zoom.

Question 4. Your capacity for investment

This question is scored out of 25.

Describe the preferred amount of grant funding you wish Innovate UK to make available for award to successful SME applicants introduced by you and the rationale for this.

Describe the size, investment period, percentage deployed to date and follow-on expectations of your capital available for investment. Include, as appropriate:

  • allocated capital from your balance sheet
  • capital in investment vehicles (for example limited partnerships with defined investment periods and fund terms) which are currently in their investment period
  • capital available from active business angel network participants
  • the amount of capital you expect to make available for aligned investment in investor partnerships programmes
  • your sources of funding and your investor base
  • the amount of funds that you expect to be deployed into new investments and into follow-on funding over the next 2 years
  • your track record in supporting portfolio investments with follow-on funding
  • the proportion of investments in your portfolio that you expect to receive follow-on funding

Describe or explain how you source investment opportunities, including:

  • your approach to sourcing proprietary deal flow, citing appropriate examples
  • your approach regarding leading investments or syndicating with other investors, with examples of deals completed alongside other funders
  • how you encourage diversity (for example in terms of age, gender or ethnicity) among companies seeking investment from you

Your answer can be up to 800 words and you can submit up to 3 appendices to support your answer. They must be PDFs and can be up to 20 A4 pages long and no larger than 10MB in size. The font must be legible at 100% zoom.

Question 5. Your capability as an investor partner

This question is scored out of 25.

Describe or explain your approach to transacting investments, including:

  • your involvement to date with businesses who have received funding from Innovate UK, or why you are interested in working with innovative, and intellectual-property rich companies, if this is a new approach for you
  • your decision making and governance processes in relation to committing funding to new investments and follow-on opportunities
  • your approach to diligence, for example whether this is internal or external and the type of diligence you typically undertake
  • the experience of the individuals tasked with the leadership and execution of the investment strategy in your organisation, including any current responsibilities outside of your organisation and the time allocated to each - you can include short CVs as an appendix
  • any ‘key individuals’ in relation to the operation of your organisation, explaining how the organisation would mitigate against a prolonged absence or inability to perform their duties
  • in the last year: the volume of introductions, the conversion rate and time taken from introduction to completion

Describe or explain how you manage your portfolio, including:

  • your approach to portfolio management, giving the level of engagement with portfolio investments, available resources, and the ratio of portfolio investments to investment professionals or portfolio managers
  • your approach to investor reporting, including your reporting tools and processes
  • the experience of the individuals who are involved in portfolio management, if different to those involved in transacting new investments - you can include short CVs in an appendix
  • your approach to appointing directors (non-executive or investor) and how suitable individuals are identified
  • your approach to managing potential conflicts of interest
  • your approach to structuring investments to plan for responsible exits
  • how you deal with under-performing companies

Your answer can be up to 800 words. You can submit up to 3 appendices to support your answer. One appendix should describe the skills of the main people vital in maintaining your portfolio of investments. They must be PDFs, up to 20 A4 pages long and no larger than 10MB in size. The font must be legible at 100% zoom.

Question 6. Your alignment to the investor partnerships programme

This question is scored out of 25.

Explain how your investments and your portfolio businesses align with the strategic objectives of UKRI and Innovate UK, and tell us:

  • the amount of capital you expect to make available for aligned investment in new businesses to your portfolio and in follow-on investment in existing portfolio investments through investor partnerships programmes
  • your experience of investing in businesses with an innovative offering
  • your experience of investing in businesses that have demonstrated their ability to grow and scale and contribute to the UK economy and society, including by exporting into new markets
  • your experience of investing in and supporting investee businesses through follow-on funding and/or sourcing or syndicating with new investors
  • your experience of investing in organisations with mission-driven or entrepreneurial management teams or in supporting organisations to source executive and non-executive talent
  • your experience of investing in organisations with a focus on delivering social, economic or societal impact

Describe or explain your interest in the investor partnerships programme and how your investment strategy might change as a result of the Transforming Foundation Industries Investor Partnership programme.

Tell us:

  • your interest in this challenge area and why you believe it is an exciting area for investment
  • details of existing investments in or closely aligned to this area
  • your anticipated activity in this area, including the distribution of investments, average transaction size and timing of investments
  • how you will use this programme to access new opportunities and why the programme will make a difference
  • about your team members with specific experience relating to this challenge

Describe or explain the specific areas that you are potentially interested in investing in from these 4 themes and any other industries that you are currently targeting:

  • energy costs and optimisation such as heat or energy recovery and reuse
  • process measurement, optimisation and digitisation, such as sensor technology or digital tools
  • waste recycling, utilisation and symbiosis, such as reuse of waste or industrial symbiosis
  • new product and service development, such as new materials, new materials-based products and services, or new business models

Industries

  • cement
  • ceramics
  • chemicals
  • glass
  • metals
  • paper

Your answer can be up to 800 words and you can submit a copy of as up to 3 appendices to support your answer. One should describe your relevant investment portfolio They must be PDFs and can be up to 20 A4 pages long and no larger than 10MB in size. The font must be legible at 100% zoom.

Background and further information

Extra help

If you need more information, email us at support@innovateuk.ukri.org or call the competition helpline on 0300 321 4357.

Our phone lines are open from 9am to 11:30am and 2pm to 4:30pm, Monday to Friday (excluding bank holidays).

About this programme

The Transforming Foundation Industries Investor Partnership programme aims to provide simultaneous grant funding and venture capital investment in UK-registered SMEs to support late stage R&D projects and business growth.

Innovate UK is now in a position to offer equity providers the opportunity to join us and become investor partners on the Transforming Foundation Industries Investor Partnership programme

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