UK tech start-ups are doing well. Let’s now look towards helping them become big businesses

Nov 13, 2013

It was pleasing to hear David Cameron use his Lord Mayor’s Banquet speech to reiterate the need to support UK start-ups. He cited progress in “opening up government procurement to start-ups, spending hundreds of millions to stimulate venture capital investment and getting behind technology clusters wherever they start to emerge”, all of which are to be welcomed. One might add that the UK is now home to some of the world’s best tax incentives to encourage individuals to invest in new businesses (EIS and SEIS), and the Government’s Start-up Loans scheme has successfully provided a total of £48 million to 9,931 new businesses.

Yet there remains much to be done. In our report, Bits and Billions: A blueprint for high-impact digital entrepreneurship in the UK, we emphasised that in the current absence of enough domestic computer scientists (hopefully to be rectified by changes to the computer science curriculum in schools), the UK should relax visa requirements for skilled migrants. This would enable start-ups to take on staff for a two-year probationary period without needing to pay a high up-front salary. Government should also reinstate a two-year post study visa for graduates achieving good degrees in STEM subjects to make it easier to find and hire talent from UK universities. We argued too for capital gains tax rollover relief for shares, which would give an extra incentive for investors who have backed successful businesses to reinvest their gains in the next wave of innovative start-ups.

The private sector must likewise play its part. Speak to founders at any of the burgeoning number of tech meet-ups, and you will struggle to find a single entrepreneur who has managed to secure a loan from a high street bank. That must change. Conversely, it is good to see KPMG announcing its own $100 million investment fund for data and analytics firms. More companies should follow their lead. Businesses of all sizes need to increase their involvement in bringing about a cultural change in attitudes towards entrepreneurship. In California, having a failed start-up (or two) on your CV is considered a right of passage, a career asset that shows ambition, lessons learned, and resilience in the face of adversity. In the UK, a failed business is too frequently considered a personal shortcoming of the founder. We need entrepreneurs to be visiting schools and universities to challenge those attitudes and raise aspirations (schemes like Founders4SchoolsSVC2UK and NACU are making headway). Where possible, big businesses should be encouraged to offer their staff entrepreneurial sabbaticals where they have the freedom to start a business, knowing they have a job to return to if it fails, but sharing equity with their employer if it succeeds. The government alone cannot instil this change for us.

Beyond start-ups

Now is also the time to look beyond start-ups. Thousands of one-man-band companies will never square the circle of the UK’s unemployment issues; high growth, high impact businesses will. The problem is that lamentably few UK start-ups ever become mid-sized, let alone tech giants. Seed investors often seek a 3-5 year exit, leading many young companies to sell to larger (and often US) competitors just at the point that they wish to expand. If David Cameron wishes to see home-grown Twitters and Facebooks float on the London Stock Exchange, much more needs to be done to help with secondary – and subsequent – rounds of funding. Cash is still very much king. The term “start-up” implies the beginning of a business journey. Policymakers, investors and the private sector must now make sure that businesses don’t run out of funding along the road to becoming the big enterprises we need them to be.

Author

Eddie Copeland

Eddie Copeland
Head of Technology Policy, 2013-15 Read Full Bio

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