As the Brexit turmoil continues with the appointment of a new Prime Minister, Mark Brownridge, non-executive director of Velocity Capital Advisors, explains why Boris Johnson needs to commit to tech startup-friendly policies and what these important British businesses need right now.
What a time to become Prime Minister! Boris Johnson has taken the helm at arguably one of the most turbulent and economically challenging times in the UK’s history. Would you want to be in his shoes?
The flipside, of course, is that he has the chance to make a difference and potentially set the economic course of the UK for the foreseeable future. So despite the shadow of Brexit – and things in this area seem no more certain than they have for the past couple of years – how can our new PM start to breathe life back into an economy that certain experts are suggesting might drift into recession?
One strategy could be to offer more help to small companies, particularly on the technology side. We currently have 5.7 million SMEs in the UK, which makes the country a hot spot for start-ups. According to the Centre of Entrepreneurs, last year was the biggest ever for startups with over 600,000 launching, which is pretty impressive considering the prevailing climate.
This is particularly good news on the employment and revenue front as the UK’s SMEs employ 99% of the population and produce 61% of turnover – that’s more than all the FTSE 100 companies combined, delivering a major boost to the UK economy and one that appears to be growing. And this is despite recent government policy that’s been focused on big business, leaving SMEs to pretty much fend for themselves.
So Boris, let’s change this, and boost UK employment and revenues further, by dedicating some policies to making life easier for SMEs to help them grow and launch. This is particularly important for technology startups, which have the added benefit of spreading innovation across Britain, helping make businesses more productive and competitive.
A primary aim of any new SME policies should be to keep technology companies in the UK. We have the minds and expertise to come up with innovative ideas. We have the drive to launch highly innovative startups. However, more could be done to nurture them beyond the startup phase.
The UK remains a fertile breeding ground for innovation. According to Dealroom.co and Tech Nation, the UK has created a total of 60 tech “unicorns” – companies worth more than $1bn. This is more than every other European country, and London alone has created 36 UK unicorns since 1990, worth a combined $132bn.
This indicates that the UK tech startup scene has been a great success. However, these celebrated companies that are supposed to pave the way for British success are not hanging around. They are either being snapped up by foreign predators, like Arm Holdings and Shazam, or are abandoning the UK and choosing to list elsewhere, whether the US, China or Japan. Something needs to be done to arrest this slide.
The problem lies in the funding. The EIS and SEIS initiatives have done a lot to encourage investment in what is traditionally seen as a high risk area, by introducing a range of tax incentives to investors in high technology startups. In fact, these schemes have become the envy of Europe with the UK hosting foreign delegations to find out more about them so they can introduce them in their own countries. Of course, there’s always room for improvement and the Government could do more to relieve the administration burden, giving investors immediate tax relief rather than in four to five months after investing, and also making paperwork less onerous and digitising the process.
But there also needs to be more done to continue to attract funding to the unicorn stage and beyond. The Nasdaq seems to be more generous to technology businesses than the London Stock Exchange. There are very few in the FTSE 100, yet a number of British tech firms have chosen to list on the Nasdaq over the past couple of years. These include online fashion retailer Farfetch and London-based biotech company Autolus, while food delivery company Deliveroo is expected to list in New York within the year or so.
Although the forecasts look good for SMEs and Boris is making all the right noises, this needs to be turned into positive action sooner rather than later so we can keep hold of our most innovative, influential and potentially highly lucrative businesses.