The IMF is tipping the UK to fall into recession, inflation is still high, and there is a palpable sense of gloom about the UK’s economic prospects. Despite this, one bright spot stands out: the UK’s growth as a hub for start-ups and entrepreneurship. The amount invested in British start-ups has grown exponentially over the past decade, from £1.6 billion in 2011 to nearly £28 billion in 2021. London is the top destination for venture capital in Europe, with its start-ups raising double the funds managed by their peers in second-place Paris, and falling behind only Silicon Valley and New York globally. There is only one problem with this success story: Britain’s best start-ups are being poached.
The turmoil in the wider economy means that the UK’s once fertile venture market is drying up. Last year was the first on record where the amount of money invested in start-ups decreased. In turn, companies are looking overseas for money, and finding that it often comes with strings attached in the form of demands to relocate.
The American venture market presents a particular draw. Silicon Valley is the uncontested start-up capital of the world, New York is a bigger financial centre than London, the American consumer market is bigger and wealthier, and American investors are happier to give start-ups more money for riskier ventures. We have always been in danger of losing our best start-ups to American investors who want to be near the companies they are helping build. Europe, too, is getting in on the act. European funding bodies are still giving money to British companies for scientific ventures like drug development and space exploration; they’re just asking that they move operations to an EU country to continue their business.
We are now at risk of seeing a generation of founders tempted overseas. In response, you might think the government would be doing all it can to get us back on track. It’s doing anything but. Of particular concern to some of our nation’s most innovative entrepreneurs are planned cuts to the generosity of R&D tax credits. These incentivise investment in developing new goods and services, and have been integral to fostering cutting-edge innovation. Scheduled to take effect this April, research from Coadec suggests the reform will cost the average start-up £100,000. Combine this with rising corporation tax, general Government hostility to tech companies, and the poor outlook for domestic investment, and it isn’t surprising that companies are leaving.
Start-up founders are not like the rest of us. They are devoted to the companies they’re trying to build, and more than happy to flip between countries to make it work. While only 14% of the British population is foreign-born, 49% of the UK’s fastest growing companies have at least one foreign-born founder. Anecdotally, many of them are here because the UK is the best place for them to grow their business. When that ceases to be the case, they will move – taking the promise of jobs and further inward investment with them
We’ve already seen this process play out with Estonia. A small nation on the edge of the Baltic, it boasts the highest number of billion-dollar start-ups founded per capita. But while Estonia clearly has enviable levels of entrepreneurship its population is too small and too remote from other tech centres to provide the ecosystem necessary to sustain its start-ups. As a result, many of them move to scale. Looking at the ten Estonian start-ups valued at over a billion dollars, only two of them, Bolt and Veriff, are still based in the country. Skype is now based in Luxembourg, Gelato has moved to Norway, and Playtech to the Isle of Man. Zego and Wise (formerly TransferWise) are now based in London and ID.me, Pipedrive and Glia are in the USA.
We should be proud of our start-up ecosystem, but we should also remember that the competition for our companies is global. Capital goes to the best companies, and their founders go to the best opportunities. Britain is in danger of losing its edge – and, like Estonia, its start-ups.
Aria Babu is Head of Policy at The Entrepreneurs Network
#Britains #startups #poached #Telegraph