Better ways to spend £150 million


 

A recent Lex article (see below) from the FT highlights why the UK government's new £150 million venture fund is unlikely to stimulate much new venture creation or entrepreneurial spirit. A useful suggestion in the article is to concentrate on attracting and retaining the best talent to help drive


such ventures forward, and specifically that a 50% top tax rate will not help.

Another suggestion we would make would be to take a serious look at the current UK taxation of options. Given the punitive levels of dilution that can occur through subsequent investment rounds, a positively incentivising option structure (as occurs in the US) may be one of the few real ways to reward entrepreneurs, managers and high-net-worth investors for risking their time and money. The alternative is to stand by and watch the talent asses its opportunity cost….and go elsewhere.


UK venture capital
 

FT.com, Lex. July 3 2009

 

// <![CDATA[
function floatContent(){var paraNum = &quot;3&quot;
paraNum = paraNum – 1;var tb = document.getElementById('floating-con');var nl = document.getElementById('floating-target');if(tb.getElementsByTagName(&quot;div&quot;).length&gt; 0){if (nl.getElementsByTagName(&quot;p&quot;).length&gt;= paraNum){nl.insertBefore(tb,nl.getElementsByTagName(&quot;p&quot;)[paraNum]);}else {if (nl.getElementsByTagName(&quot;p&quot;).length == 3){nl.insertBefore(tb,nl.getElementsByTagName(&quot;p&quot;)[2]);}else {nl.insertBefore(tb,nl.getElementsByTagName(&quot;p&quot;)[0]);}}}}
// ]]>

Nothing ventured, nothing gained. The UK government’s recent decision to invest £150m in a new venture fund is the latest attempt to help British start-ups navigate a death zone formed by a lack of mid- to late-stage funding. Its goal – to drum up £1bn of public and private funding for start-ups over 10 years – is laudable. But it is unlikely to make much difference.

Anyone familiar with the reality show Dragons’ Den can attest that the UK does not suffer from a lack of boffins with interesting ideas. Yet in spite of decades of government-backed schemes, the UK has yet to develop the vibrant start-up ecosystem of the US or, more recently, Israel. The problem goes well beyond the financial crisis, which has hit start-ups and their backers everywhere.

One reason may be entrepreneurial energy tends to feed off itself. In Silicon Valley, successful start-ups – think Google, Amazon, Microsoft – have gone on to acquire the next generation of minnows, giving risk capital an incentive to enter the market. Founders become serial entrepreneurs, or join venture capital groups, helping to attract yet more talent. In the UK, start-ups are more likely to sell to a global powerhouse than to become one. Acquisitive venture-backed successes, such as Autonomy, the business software company, are the exception.

A modestly sized VC fund would have to turn £300m into £1.5bn over its 10-year life to make the returns limited partners want. That needs good ideas and seasoned managers with experience of turning start-ups into thriving, stand-alone companies. If government is serious about nurturing a UK start-up culture, to attract such talent should be a priority. A 50p top tax rate will not help.


This comment was written by Raman Minhas. He is CEO of ATPBio, a consultancy firm providing strategic insight and transaction support to the life sciences industry.

Advertisements

One thought on “Better ways to spend £150 million

  1. I can verify that it is more difficult for UK firms to become global powerhouses. There are several factors: the US has more powerful and dynamic stock markets for science/technology firms thus venture backed firms can attain liquidity more easily. Also, the tendency for UK VCs is to support British start-ups to a certain size and then position the firm for sale to the USA. This is not a bad thing as the VCs still get impressive returns. However, it does limit the experience base of the entrepreneur as they may then have to return to an early-stage start up phase which tends to thus nip their “global ambition” in the bud.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s