APPG for Entrepreneurship Digest: Jan 2022
/In the world of politics and policymaking, it is often tempting to focus on what isn’t working and ignore what is. There’s a straightforward reason for this. When, for example, energy prices skyrocket, it suggests something needs to change. But, it is a mistake to only focus on problems. If we spend too little time looking at success stories, it can lead to two shortcomings.
First, many solutions from one area of policy could apply in two other problems. For example, FinTech’s regulatory sandbox, which allows startups to test innovative propositions in the market with real consumers, has inspired similar sandboxes in other sectors such as drones and data.
Second, if we do not spend time understanding why certain markets and sectors are successful, we might undermine them in the future. The author GK Chesterton makes the point that we should not tear down fences until we know why they were put up in the first place.
The UK’s tech sector is a success story, which I think deserves more attention.
Last year, research from the Digital Economy Council revealed that:
UK startups raised and scale-ups raised £26bn last year, nearly double the figure raised in Germany (£13.5bn) and more than three times that raised by France companies (£8.6bn).
In fact, UK tech investment made up more than one third of all investment into the European tech sector.
There were 29 unicorns (firms valued at over $1bn) created last year, bringing the total number of UK unicorns to 116.
The UK’s tech sector is a source of new jobs too. Advertised tech vacancies hit 160,887 in November and tech jobs are now half of all vacancies outside London and the South East according to online job board Adzuna. In fact, the tech sector plays a key role in levelling up the UK with the rest of the UK seeing nine new unicorns and nearly £9bn in new investment.
It’s worth then looking at what the ingredients of our startup successes are.
I can think of three.
Immigrants play an outsized role in the UK’s tech ecosystem, both as employees and as founders. Two years ago, I surveyed the founders of Britain’s 100 fastest growing startups and found that half were born overseas. Reassuringly, the message has got through to government with the Chancellor citing the research at the last Budget.
Universities are important too. Growth is concentrated around the UK’s leading research universities. As well as training the next generation of tech founders, they are also a magnet for international talent. In my research into immigrant founders, it was striking to see how many moved to the UK to study and then stayed. The restoration of the Post-Study Work Visa is a positive step on this front. Our universities are truly world-beating and many tech ecosystems wish they had the same. We shouldn’t take them for granted.
Tax breaks such as the Enterprise Investment Scheme, the Seed Enterprise Investment Scheme and VCTs play an important role too at the early stage for tech startups. Many startups and investors see the reliefs as essential. Yet, there is some uncertainty around the schemes as they are set in April 2025. Worryingly, awareness among Parliamentarians is often low. A 2017 poll suggested a sizable proportion had never heard of EIS and a majority had not heard of SEIS or VCTs.
Over the next year, the APPG for Entrepreneurship will continue to produce briefing papers highlighting challenges for entrepreneurs. But it shouldn't all be gloom and doom. Alongside the policy recommendations we’ll also be working to improve understanding and awareness of the key ingredients in the UK’s startups successes.
In parliament
In a debate on Cooperatives and Mutual Societies, Steve Baker, the Conservative MP for Wycombe, made the case for the government to do more to support cooperatives. “By international comparison, [the UK’s] co-operative economy is small and growing slowly. Less than 1% of businesses in the UK are co-operatives. Germany’s co-operative economy is four times bigger than the UK’s, and France’s is six times larger. That might well derive from history, but I say to the Government that now is a moment when we can choose positively to take a path that makes it more possible for co-operatives in the UK to grow. The UK’s co-operative start-up rate is also comparatively low. In recent years, South Koreans have created 12 times more co-operatives per head of population than we in the UK have. Perhaps the co-operative model is underused and is something of a best-kept secret in our society and economy.
“Co-operatives are great vehicles for creating and sustaining decent, rewarding and empowering livelihoods. For example, after five years of trading, the average worker co-operative in the UK supports six times more livelihoods and is almost twice as likely still to be trading as start-ups generally. According to a multi-country study, although they are currently far fewer in number than businesses generally, worker cooperatives are on average larger and employ more people. There are examples of cooperative entrepreneurship, for example the taxi drivers in Cardiff who clubbed together to set up their taxi-hailing co-operative, and of participation in existing freelancer co-operatives, such as the new co-operative mutual aid platform, We-Guild, or the creatives’ co-operative Chapel Street Studio.”
He also says that cooperatives are more resilient than other businesses .“A growing body of data shows that co-operatives are especially resilient businesses. At a time like this, resilience could not be more important. Official data in our country shows that co-operative start-ups are twice as likely as start-ups generally to survive the first five years of trading, for example, with similar findings in other countries. Separate research shows that co-operatives in the UK that raise equity via community shares—a crowdfunding model unique to co-operatives—are more resilient still, with a 92% survival rate.”
The Labour MP for Plymouth, Luke Pollard, described some work being done in Plymouth to support social enterprises. “In Plymouth, we have co-operatives such as Nudge Community Builders, which works to transform life chances in one of our poorest communities—not just in Plymouth, but in Britain—by rebuilding and refurbishing buildings along Union Street and Stonehouse. It is transforming that community by not only improving the buildings, but creating spaces for start-ups, social enterprises and community services. It is helping to restore pride in something by allowing people to invest in their own community through that effort.”
In a debate on Financial Services, Conservative MP for Cambridge, Anthony Browne said that now, post-Brexit, it is time to reconsider some of the EU financial rules which we copied over upon leaving the bloc. He said “I personally support allowing two classes of shares to encourage investment in start-up companies. The Government are now consulting on regulatory reform of wholesale financial markets, particularly the second markets in financial instruments directive, MiFID II, and the rules on the capitalisation of the insurance market—Solvency II. If we get the reforms of Solvency II right, that promises to unleash productive investment across the UK, especially in high-growth firms. MiFID II and the European market infrastructure regulation are extraordinarily detailed and prescriptive, and could be simplified without harm. Excessive detail can prevent beneficial innovation. We should avoid gold-plating international standards, unless there are clear reasons to do so. Rules on pre-trade transparency can be counterproductive. The share trading obligation can be safely removed.”