8INNOVATION UK To remain competitive, early stage businesses ( particu-larly SMEs) need to be able to embrace innovation and take advantage of new technologies and opportunities. It is these businesses, and the entrepreneurs who create them, that are particularly suited to taking advantage of emerging technologies, new business models, processes and markets. They make a significant contribution to growth, employment and wealth- creation. Innovative businesses will only thrive where the right financial architecture is in place. UK start- ups and early stage companies have had great difficulty obtaining finance in the past few years. Venture capital funding has declined by 70% over the past year and this lack of invest-ment is damaging because it restricts the future flow of new businesses and talent into the economy. As the largest source of pre- institutional seed finance in the UK, we worked closely with other venture capital funders urg-ing the government to set up a publicly backed venture capital investment fund. The creation of a £ 150m Innovation Investment Fund is a welcome sign of commitment by the government. It will provide a shot in the arm for the venture capital market, stimulating future avenues of growth. Equally, Britain should accelerate the roll- out of the next-generation broadband so that we can embrace and lead on the opportunities of the digital era both to help revive the economy and improve public services. In this vein, we are helping small companies to devise business models to take advantage of digital platforms so that they are competitive and profitable. An innovation economy also requires more efficient pub-lic services: that use modern technology, user involve-ment and effective design to do more for less. NESTA's Big Green Challenge is demonstrating how bottom- up community- led innovation can respond to meet the big social challenges we face, offering insights for a new wave of people- powered public services. The Public Services Innovation Lab is working across public services, sup-porting frontline staff and users to create more innova-tive services that can provide more for less. Across all this activity, we know that increasing the UK's capacity for innovation in the future means engaging today with the innovators of tomorrow. An important strand of NESTA's work focuses on developing from an early age the innovative skills and attitudes that underpin successful innovation. NESTA is particularly interested in how best to equip young people with the demands of a fast- changing economy, so that they can be fully involved members of tomorrow's workforce, capable of leading change and the instigators of innovation. Above all else, we know that innovation comes from diversity and difference. NESTA's remit, as an independ-ent endowment, is to test new ways of doing things, pushing forward the frontiers of innovation. That's why we are creating a body of evidence that, if proven on a small scale, will be scaled up across the UK. That's where the great potential for the UK lies. With high- tech competition from across the world, our future as a global economic player depends on creating the best conditions for innovation. Anything less would be a missed opportunity to build the road for recovery out of recession. For more information, visit: Website: www. nesta. org. uk British Innovation johnathan kestenbaum, chief executive, NESTA

INNOVATION UK9 A key element of the Technology Strategy Board's approach focuses on " challenge- led" innovation. Heidi Lovelock, Head of Innovation Platforms, explains this idea, the organisation's work in this area and what it means for business Challenge- led innovation When the Technology Strategy Board was established in 2007 as a stand- alone body from government, we were given a leadership role in stimulating technology-enabled innovation for the benefit of the UK economy. This was an exciting ambition and, at the same time, seemed rather daunting. The " landscape" of innova-tion is huge and rather fragmented. Many companies located here are already world leaders in R& D. Yet, at the same time, every corner of industry and business offers potential for innovation to make a difference. We were building on a foundation of good work done by the former DTI, but we knew that, given our finite size and budget, we would have to work fast to understand where our efforts could make most difference, where we should focus, and how we could bring in partners and co- ordinate resources from elsewhere to make the biggest impact possible on this vital agenda. As well as maintaining and developing the existing pro-grammes of R& D investment that we inherited, and tak-ing into our portfolio other established programmes such as the Knowledge Transfer Networks and Knowl-edge Transfer Partnerships, we set about thinking hard about our strategic focus. In this process the concept of challenge- led innovation clearly " floated to the top", and has turned out to have a fundamental role in what we do and our future strategy. To us, challenge- led innovation means the process by which societal needs, market demands or economic challenges tend to pull new products and services from basic research, through development towards commercialisation. We draw a distinction between this and " technology- inspired" innovation, which is driven by scientific advance or technological achievement. Britain has great strengths and is an acknowledged leader in many sectors. Areas such as aerospace or pharma-ceuticals are traditional powerhouses. We also have a deep well of invention and enterprise, with innovation stemming from brilliant ideas and technological break-throughs over hundreds of years. We coined the term " technology- inspired" for this valu-able stream of innovation. Our strategic review made it clear that this would continue to be important to the UK's economic future and we had to continue support in this area. We also knew that there was work to be done in fostering a climate of innovation in the UK. The Knowledge Transfer Networks and Knowledge Trans-fer Partnerships were performing a valuable function, but were not yet pervasive in business. There was great scope to increase the country's appetite for and belief in innovation. But it was in the challenge- led area - encompassing both market needs and major societal issues - that we knew we could gain most dramatically, with need and demand as powerful mechanisms for pulling innovation through to commercial reality. In the strategy we published in May 2008, we stated that while we would maintain support for technol-ogy- inspired innovation and that we would work to foster an innovation climate, challenge- led innovation would grow significantly in terms of where we invested our resources. We identified a number of broad application areas on which to focus. These include medicines and healthcare; energy generation and supply; transport; environmental sustainability; the built environment; creative industries; and high- value services. British Innovation challenge- led inovation