By Chris Elphick
Labour’s Start-Up Review is an important opportunity for the Party to set out its plans for future growth and demonstrate long term strategic planning. A key to making this a success will be working not only with entrepreneurs but also with the investors, such as venture capital (VC) funds that partner with and help to grow innovative companies.
The Party’s call for evidence is right in identifying the UK’s ‘rich ecosystem of innovation and entrepreneurial talent’, and that fast-growing firms ‘punch significantly above their weight in economic contribution’. However, there is much more that could be done to help the UK’s burgeoning VC industry to support and develop small, exciting businesses with high growth potential.
VC is already the driving force behind thousands of UK small companies–investing almost £1.18bn into 650 start-ups and small businesses across our nations and regions. These businesses are often in R&D intensive sectors like life sciences and deeptech (next generation technology) which drive our economic growth but also address prominent societal challenges, like climate change, or drive exciting advances in medical science.
The VC industry provides these businesses with much needed access to capital which, given the high-risk nature of supporting start-ups, can be difficult to source elsewhere. It also brings with it hands-on support and experience; helping the business to identify key strategic objectives, hire the right people, and benefit from their extensive networks.
So, what more can be done, and where can changes be made, to help to support and grow high-value start-ups in the UK?
There has already been some notable progress made in broadening VC capital across the country – the British Private Equity and Venture Capital Association’s latest report found that 66% of businesses backed by its private capital members were outside of London, and regions like the North West are emerging hotspots for investment. There are several ways this trend can be supported. For example, unlocking EIS and VCT regional investment by removing the Sunset Clause, improved promotion and access to existing local funding opportunities, and making it easier to hire talent from all over the world
Lots of small, high-growth firms start life as university research projects – particularly in the science and technology sectors. Take Nottingham’s NuVision Biotherapies which began life in Nottingham University. With support from VC investor Mercia, the company was able to commercialise its research. Stories like this are not uncommon but the UK needs to be better at commercialising the research made possible by our higher education sector. Better connections with VC will be vital to this.
There is a great deal more for Labour to ponder in building on the review. The technology revolution is one of the three key areas outlined recently by Tony Blair as the main challenges facing Britain, alongside climate change and Brexit.
A Labour Government will need to be creative and more interventionist in areas of tech that are key to future growth, with a focus as well on infrastructure, defence, and national security. Further thought must also be given to how the UK, which currently spends only 1.7% of GDP spend on R&D, can match the OECD average of 2.4% and reach Labour’s stated target of 3%.
The success of VC investment in the UK will be a significant part of delivering this ambition. While the UK is the largest hub for VC investment in Europe, it still lags behind the US in terms of overall investment as a percentage of GDP, especially at later investment rounds, which means firms still look to the US for funding at this stage. And this often starts the journey for these high-value businesses re-locating in the US and/or listing on US public markets. Long term, strategic thinking is required across government to ensure that the best UK businesses are given the opportunity to become global players, based in the UK.
Labour should build on what already works well, and think of what more government can do to provide the right incentives to grow the businesses of the future.
Labour in the City Member
VC Policy Manager, BVCA