One way Labour can unlock capital is to tap into the potential of pensions and channel more money into venture capital to plug the Series A funding gap, according to Edward Prior, head of investor services at venture capital firm SFC Capital. “There’s more US pension fund money going into UK startups than there is UK pension fund money,” he says.
“Yes, we have to be the best place to start a company, and we really are among the best in the world at that, but we also have to be the best at growing a company, because we lose too much of our value to our economy in those growth 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 previous government’s initiatives and carry them through. The Labour manifesto makes no mention of any changes to the conservative EIS (Enterprise Investment Scheme), SEIS (Seed Enterprise Investment Scheme) and VCT (Venture Capital Trust) tax regimes, but venture capital funds argue that it is important to maintain these initiatives to improve the start-up economy.
Russ Shaw, CBE, founder of Tech London Advocates & Global Tech Advocates, a startup support community, believes the biggest problem is funding for companies seeking unicorn status. He also highlighted talent pipeline issues, which Labour could address by addressing 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 applicants have to go through that is fundamentally flawed,” Shaw says.
Alan Chang, of Fuse Energy, a clean energy company launched two years ago, says his company has had to “jump through a lot of hoops” to attract foreign talent to the UK. It’s a problem that Labour will need to address by making it easier, faster and cheaper for highly skilled talent to get visas. “I know a lot of very successful people in my network who have left the UK or are thinking about leaving,” he says.
If Labour were to scrap the immigration health surcharge – an annual fee of about £1,000 ($1,276) for workers – it would make it much more attractive for skilled people to come to the UK, says Zach Meyers, deputy director of the Centre for European Reform. “The immigration surcharge is a bit crazy because it’s really a tax on migrants. And it’s something that I think would go a long way to solving the skills problem.”
The new government would also do well to pay attention to the £250bn of added value identified in the 2019 Alison Rose report that could be unlocked if women were supported to the same extent as men. Only 2% of venture capital funding goes to women, says Emma Wright, a partner at UK law firm Harbottle & Lewis, co-leader of the invest-HER campaign and director of the Inter-Parliamentary Forum on Emerging Technologies. She argues that there would be “a lot of benefits” in providing transparency about where investment funds are going. “It would help to address certain mandates around, for example, social mobility or regional funding, but also to be able to then assess whether there is more to unlock in the economy.”
