One way Labour can free up capital is to harness the power of pensions and allocate more of its funds to venture capital to plug the Series A funding gap, says Edward Prior, head of investor services at early-stage VC fund SFC Capital. “There is more US pension fund money in UK startups than there is UK pension fund money,” he argues.
“Yes, we have to be the best place to start a company, and we really lead the world in that, but we also have to be the best at scaling a company because we lose too much of our value to our economy in those scaling stages, where there's not enough money coming in at Series A and beyond.”
If the new government is looking for inspiration to close the funding gap, it could adopt some of the initiatives of the previous government and continue with them. Labour’s manifesto made no mention of changes to the Conservatives’ Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trust (VCT) tax schemes, but VC funds argue that it is important that these initiatives are retained to improve the startup economy.
Russ Shaw CBE, founder of Tech London Advocates & Global Tech Advocates, a startup support community, said the biggest problem was funding for companies seeking unicorn status. He also highlighted talent pipeline issues, which Labour could address by delving into the thorny issue of immigration.
“We have the Scale-Up Worker visa and the Global Talent visa, which are good, but it's the process that candidates have to go through that is fundamentally broken,” says Shaw.
Alan Chang of Fuse Energy, a clean energy company founded two years ago, says his company has had to “jump through so many hoops” to attract overseas talent to the UK, and that this is a problem Labour will have to solve by making visas for highly skilled talent easier, quicker and cheaper to obtain. “I know a lot of people in my network who are very successful and who have left the UK or are thinking about leaving,” he explains.
If Labour were to drop the immigration surcharge for health care, a levy of around £1,000 ($1,276) a year on workers, it would make it much more attractive for skilled people to come to the UK, said Zach Meyers, assistant director of the Centre for European Reform. “The immigration surcharge is a bit crazy because it's effectively a tax on their migrants. And that's a single step that I think would go a long way towards solving the skills problem.”
The new government would also do well to pay attention to the £250bn of new value identified in the 2019 Alison Rose Review that could be unlocked if women were supported at the same rate as men. Only 2% of VC funding goes to female founders, points out Emma Wright, a partner at UK law firm Harbottle & Lewis, co-leader of the invest-HER campaign and director of the Interparliamentary Forum on Emerging Technologies. She argues that there would be “a lot of benefit” from providing transparency about where investment money is going. “It would both address some of the missions around, say, social mobility or regional funding, but also the ability to then make an assessment of whether there’s more to unlock within the economy.”
