One way Labour could free up capital would be to harness the power of pensions and allocate more money to venture capital to plug the Series A funding gap, says Edward Pryor, head of investor services at early-stage venture capital fund SFC Capital. “There's more US pension fund money flowing into UK start-ups than there is UK pension fund money,” he argues.
“Yes, we need to be the best place to start a business, and we are a world leader in that. But we also need to be the best place to scale a business, because we lose so much of our value to the economy in the scale-up phase, where there isn’t enough capital coming in after Series A.”
If the new government is looking for inspiration on how to plug the funding gap, it could do so by adopting some of the previous government's initiatives. The Labour manifesto makes no mention of changes to the Conservative EIS, SEIS and VCT tax systems, but venture capital funds argue it's important to maintain these initiatives to improve the startup economy.
Russ Shaw CBE, founder of startup advocacy communities Tech London Advocates and Global Tech Advocates, said the biggest problem was funding companies hoping to become unicorns. He also cited the talent pipeline, which Labour could tackle by tackling the thorny issue of immigration.
“The Scale Up Worker Visa and Global Talent Visa are good things, but the process that candidates have to follow is fundamentally flawed,” Shaw said.
Alan Chan, of Fuse Energy, a clean-energy company set up two years ago, said his company has “had to jump through so many hoops” to bring talented people from overseas to the UK, and it's a problem Labour must solve by making it easier, faster and cheaper to get highly skilled visas. “I have a lot of highly successful people in my network who have left the UK or are thinking about leaving,” he explains.
Labour's scrapping of the immigration health surcharge, which charges workers about 1,000 pounds ($1,276) a year, would make moving to the UK much more attractive to skilled workers, says Zach Myers, deputy director of the Centre for European Reform. “The immigration surcharge is basically like a tax on immigration, which is unusual in a way, and I think it would be a big step towards solving the skills problem.”
The new administration should also pay attention to the £250 billion in new value identified in the 2019 Alison Rose report that could be unlocked if women were given the same support as men. Only 2% of venture capital funding goes to female funders, points out Emma Wright, partner at UK law firm Harbottle & Lewis, co-leader of the Invest-HER campaign and director of the Parliamentary Forum on Emerging Technologies. She argues that there would be “a lot of benefits” from providing transparency about where investment money is going. “It would address some of the missions around social mobility and community funding, for example, but also the ability to assess whether there is still more to be unlocked within the economy.”
