Policies for a new Government to enable UK’s tech startups to flourish

by John Spindler and Alison Partridge

Overall we urge a new government to:

  1. Review all existing and new economic and business policies to see if they make it easier or harder for would-be or existing entrepreneurs to start and scale. The more barriers to entry or expansion there are, the harder it becomes for entrepreneurs and we need more and better entrepreneurs to lead on innovation and take the big calculated risks that will keep Britain’s economy competitive, create jobs and generate the surplus needed to fund our public services. 

 

We urge a new government to focus on the following key priorities to:

 

Talent

2. Introduce a simpler Visa System and a campaign to attract entrepreneur and technical talent to the UK;

3. Do more to retain talent including: 

                        a. funding support for startups hiring EU employees who are currently working in the UK - in the form of tax credits for startups;

                        b. bursary schemes (funded by Government or universities from excess fees paid to overseas students) to encourage UK students to stay on or return to study for MScs in key subject areas such as Computer Science (a BSc is not enough to get access to technical jobs in the Tech sector);

                        c. complementary bursary scheme to encourage employers to employ graduates from under-represented and disadvantaged communities in job trials / internships;

4. Develop new pathways into tech - including the planning/creation of potential and viable degree conversion courses to offer opportunities to graduates of other disciplines to explore technology [a mixture of theory-heavy and vocational options];

5. Create a professional body that allows for structured development of tech skills and their accreditation in line with other forms of education to offer the opportunity to study outside of traditional routes through higher education that match changing industry standards.

 

Risk Capital 

6. Increase the SEIS investment per firm allowance from £150K- to £300K. It has not increased since launch in 2012 and it is now insufficient to encourage and enable the operation of SEIS funds and reverse the recent decline. This could also help to incentivise investors who back diverse founders.

7. Introduce Capital Gains Tax relief on new revenue sharing funds aimed at helping startups go from under £100K to over £1m+ revenue. These funds are underwritten by the investors taking shares in the company but the earn out is via taking a predetermined share in any increase in revenue over a set period of time until this matures and the shares are then re-purchased by the founding team. 

8. Create a £100M national Tech Co-Investment Fund for England modelled on the London Co-Investment Fund and invested across the UK with no more than 50% of the funds at any one time deployed in startups based in London. The equivalent fund in London invested £23m of public funds alongside over £100M from private sector co-investment partners in 146 seed stage tech startups. These startups went on to create over 2500 jobs and is set to return 1.8X capital back to the public purse. One of the co-fund priorities should be to encourage private investors to invest in startups founded by under-represented founders. 

9. Introduce Business Rates relief for open and co-working spaces that serve startups and provide additional impact services for the community. The small business rates relief should also be extended to companies working within these spaces. If a small business is eligible for small business rates relief when renting a small office unit, then surely they should be entitled to that same relief should they choose to work in an open plan environment

10. Mandate BBB to track diversity metrics in the funds they invest in and build on ‘Invest in Women’ code, develop investment code which engages founders from all backgrounds, raise awareness amongst investors so that they adopt it.

11. Provide a significant boost to UK Research and Innovation funding to enable them to replace the lost EU funding available for UK innovative startups/ scaleups. Post Brexit UK startups will not be able to access the EU’s SME Instrument and Horizon 2020 funding. Much has been made of the lost income to academia but equally if not more serious is the loss of funding to SME’s seeking to develop and bring new innovations to market. 

 

Support Services

12. Provide significant public sector funds for a distributed model of (co)funding for accelerators, pre-accelerators and investment readiness across the UK (including in London). This could be modelled on Capital Enterprise’s CASTS programme which used £5m of EU funding over 3 years from 2016-2019 to co fund over 20 accelerator programmes. CASTS supported almost 1000 startups of which almost a third went on to raise private investment (in access of £300M) and create over 1000 new jobs.

13. Co-Fund national programmes to support deep tech startups in the industrial strategies priority areas including AI, Cyber Security, Genomics, Quantum Computing. No region in the UK (with the exception of London) has a sufficient size of cluster for a regional body such as Local Enterprise Partnership to provide dedicated support to these sectors and therefore it requires a national programmes with a remit to support across the country for these specialist highly innovative/ highly risky startups to prosper outside London and a limited number of university towns. 

14. Provide direct incentives and encouragement to universities (from existing UKRI funding) to engage, incubate and support R&D collaborations between their academic departments and personnel and small businesses. Too often universities focus exclusively on generating income for the university or in supporting its own IP rather than the generation of local clusters of innovative companies that lead to a dynamic knowledge based economies that over time can pay back to the university. 

 

Access to Markets

15. Provide incentives (probably through the R&D Tax credit system) to encourage corporates to fund Proof of Concept pilots with innovative startups. Too few firms are fully engaged with UK tech startup ecosystem and miss out on the amazing innovation being generated. For startups, even better than investment, is an early adopting customer and incentives to encourage more UK firms to engage would have a big impact

16. Review how regulatory bodies such as FCA and MHRA can fast track the granting of regulatory approval for new product and services from startups. The process that can take between 1-3 years is a serious barrier to entry and a new focus on speed and provision of support such as sandpits to decrease the time to market would have a big impact on innovation in the UK.