Editorial

Government plans for new ways of funding future tech success questioned

Working out how the UK can improve the way it helps businesses of the future grow must remain part of already established European systems post-Brexit, warns techUK

Posted 2 August 2017 by Gary Flood


Start-up companies in post-Brexit Britain could get funding from a new National Investment Fund proposed by the government this week.

According to the Chancellor, the new Fund could be set up as a public-private partnership or be placed on the government’s balance sheet and sold off once it has established a convincing track record.

The proposal is part of the consultation process of the Patient Capital Review announced by the PM last November to strengthen the UK as a place where innovative firms can obtain the long-term (hence ‘Patient’) fiscal help they need to scale up and become so-say ‘unicorn‘, huge private tech, contenders.

The context for the move: the government states than less than 10% of UK start-ups firms that get seed funding go on to get fourth round investment, compared to more like 25% in the US.

And while it’s true, says the Treasury that the UK leads Europe in the creation of unicorns it lags behind the US, which accounts for over half (54%) of these giant private companies – with China at 23%.

A mere 4% are based in the UK.

Reaction from the UK tech sector has possibly been less enthusiastic than Number 11 might have liked, however.

Commenting on the announcement, Julian David, CEO of the group that speaks for the UK IT supplier community, techUK, Julian David, noted, for example, that the government is “right” to look seriously at how the country can boost patient capital investment, as while the UK tech sector remains European leader in securing Venture Capital funding, it “still lag behind the USA on the longer term investment that helps businesses scale-up”.

“If we want to continue to compete globally then this has to change,” said David.

“However, right now the real priority for government must be ensuring the UK remains part of the European Investment Fund (EIF).”

That’s because, he claims, the EIF continues to be a key investor into UK tech and so any post-Brexit system considered as part of this consultation must seek to maintain the UK’s link to this European wide funder. (UK companies received around £800m in equity finance and £400m of other assistance from the European Investment Fund in 2016 alone, states Reuters.)

A new national fund would struggle to compete with such an established source of support sitting just across the Channel, techUK fears, therefore determining how the UK can improve its own funding mechanisms to help businesses of the future grow “must sit alongside continuing to be part of established European systems post-Brexit”.

“We should not be looking to reinvent the wheel,” he warned.