Start Ups and Digital Product Studios can bump start the economy
This Friday the UK Treasury will announce its mini budget. The plan is likely to centre on cutting taxes, bolstering growth, and reassuring everyone that they won’t have to burn the furniture to stay warm as winter bites. There’s been a spot of controversy, however, about the fact that the department won’t feature a forecast of the country’s economic outlook. The approach appears to be is to slash now, ask questions later. Probably no need to worry – sounds as though they have everything in hand. Except that while inflation spirals out of control and the pound slumps against the dollar, the government is overlooking a dormant superpower within the UK economy: start-ups.
Starting – but stalling
The story for home-grown British businesses is often one of squandered potential. Evidence shows that the UK is an opportune place to start a company but has less favourable conditions if you’re looking to grow it into something bigger. Let’s first look at the capacity of Britain’s financial institutions. A briefing by the House of Commons reports that in 2021, the financial services sector contributed £173.6 billion to the economy. That constitutes 8.3% of total economic output. There’s no disputing the heft and potential of this colossal commercial machine, but founders often gripe that when looking for finance beyond Series A (which is funding over £5mn), it’s all tumbleweeds and evasive conference calls.
When it comes to kickstarting businesses, the UK is a good place to be, according to a report by The Economist. While venture capital was once a hallmark of Silicon Valley, the approach has moved eastward and taken root in Europe in the last decade or so. UK start-ups raised 14% of all funds invested in pre-seed rounds globally in 2021. But just 49% of British deep-tech firms reach their second funding round compared with 63% in the US, according to research by British Patient Capital.
The UK needs fresh approaches to supporting its entrepreneurs. Some initiatives offer a hint of how to do this. For instance, Campus Capital is a VC fund that focuses on graduates from universities around the country. Its academy provides lessons on how to turn good ideas into companies of the future. The company is focused on cities around the country, eschewing the London-centric start-up landscape. Campus Capital offers investment rounds of £50k – £100k, but has paused for now, owing to challenging market conditions. More initiatives that enable young talent to create businesses across the country would help revive the economy.
Then there’s the Scale-up Visa, introduced by the government in the summer. This is supposed to help businesses to lure talented engineers, scientists and technologists from around the world. It seems that the scheme’s main benefit is that these highly skilled folk won’t be booted out of the country if they (and their employers) qualify. It’s a start, but an anaemic measure that ought to be in place by default. At Neverbland, like most digital product studios we’d like to see the last government’s rallying cry of levelling up re-engineered to be about British businesses. And we’re not the only ones who want more to be done for aspiring founders. A cadre of leading figures in business are urging Liz Truss to create a national competition for entrepreneurs. She would do well to listen.