Entrepreneurs and venture capitalists are calling on the UK government to set up a scheme to funnel government money directly into innovation in small and medium companies by copying a US scheme.

Every US government department has to tender for equipment through the Small Business Innovation research (SBIR) scheme, and entrepreneurs in Cambridge are calling for the same kind of scheme here, echoing calls earlier in the UK from the Confederation of British Industry for more defence funding to be used to drive innovation in the UK.

"There is a gap once you get past the government innovation grant schemes or angle investment before you reach the rich uplands of venture capital," said David Gill, managing partner at venture capitalist ETcapital speaking at the 8th Cambridge Enterprise conference. "A scheme like SBIR could be significant if implemented in the UK."

Cambridge sensor startup Owlstone set up in the US to access this programme, which requires that the company is 51% owned by US citizens. The scheme uses one online application for all government departments and $4bn has to be spent with small and medium sized companies.

But there are potential problems with this with European Union legislation on subsidies, says Gordon Murray, professor of management at Exeter University. "Much of the legislation will be outside of the control of the UK government," he said. "It's not going to be an easy ride regardless of the logic or the need for it."

"We are not going to give up on this one and this is a battle that's worthwhile to fight," said Gill.

See also: Electronics Weekly's Technology Start-ups, where you can find articles on technology start-ups in the UK, an interactive map showing the location and business sector of each start-up, and links to useful websites for the technology entrepreneur.