We need a bold, long-term vision for the startup and scaleup economy
It seems that we’ve had so many turning points over the past few years, we’re running in circles. Landmark moments from Brexit to COVID-19 have completely shifted our personal lives, politics and the economy. Crises and moments of great change put us into reactive mode, and short-term fixes appear to be the only option. Looking for solutions which reap benefits and pay for themselves further down the line is a much bolder endeavour.
With the Chancellor having given a 1-year Spending Review, it’s important to reflect on what can be done to create long-term, stable change and growth which can ride out difficult, unexpected moments. We are living in a stark economic reality which cannot be ignored, and of course demands short-term action, but we need long-term systems put in place to enable a strong recovery.
We cannot ignore the warning signs and threats. For example, a recent survey conducted by Tech London Advocates found that one in four tech companies in London fear they may not survive the impact of a no-deal Brexit, and that thousands of start-ups were on the brink of administration, given the threat of a no-deal Brexit on the horizon and the continued fallout from COVID-19.
We need quick, effective solutions built on existing, proven investment structures with a nationwide remit – across sectors, company sizes and regions. I am calling for an ambitious plan to execute this, with startups and scaleups at the heart. They create jobs and stimulate economic growth – addressing their needs is one of the best ways to bounce back from the pandemic and create an entrepreneur-led recovery.
Although the economic outlook looks worrying, there are real, positive growth stories happening in the UK at the moment. Sectors such as data management, data extraction, software and direct-to-consumer retail are thriving.
What is essential is creating the right conditions, incentives and regulatory environment for small businesses and startups to not just survive, but thrive – and not just for next year, but the next ten years. This will only be possible if we harness the growth potential of our entrepreneurs, startups and scaleups. And this doesn’t require us to reinvent the wheel – there existing schemes in place that with some more attention, or tweaks, could have immense potential.
With the need for emergency economic bailouts hopefully behind us, expanding public-private investment schemes such as Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme can provide immediate, but sustainable, patient capital to bolster growth companies across the country and drive the UK’s recovery.
Patient Capital does exactly what it says on the tin – it allows companies to grow at the rate that suits their business model and market they operate in, without demanding premature exits. VCTs are an example of a public-private partnership with 25 years of successfully providing patient capital, with nearly £500m total VCT investment in 2019 alone. There is no end date to their funding – unlike traditional VCs – with the ability to back companies for over 10 years.
As I stated earlier, investing in and unlocking the potential of existing investment schemes will deliver both short-term impact and long-term, structured growth. The VCT scheme is a brilliant example of this, subject currently to EU State Aid rules which restrict their activity, including the amount they can invest and the age of the company they can invest in.
Although Brexit poses worrying threats to our economy, the potential freedom from these State Aid rules can present opportunities to increase the flow of investment to startups and scaleups as well.