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Government is failing technology entrepreneurs, say MPs

Lack of funding and the inability to foster long-term SME growth is stifling the UK’s tech scene

The UK government is failing technology entrepreneurs and does not have a coherent strategy to support the commercialisation of technology innovation in the UK, MPs have warned.

A report issued today by the Science and Technology Committee points to the UK's apparent inability to foster small and medium businesses until they become 'tech giants', as well as a lack of capital funding due to the effects of regulating to de-risk pension funds.

This will come as a blow to the government, which has been making great attempts in recent months to boost investment in the technology start-up scene, particularly in London's Tech City. According to the committee's report, much more could be done to improve the UK's technology prospects and create long-term, stable growth for the industry.

"The UK's university and science sector is a global success, but the challenge for Government is how that world class academic research can be translated into commercial activity," said Chair of the Select Committee, MP Andrew Miller.

"Whilst we are encouraged by the work of the Technology Strategy Board (TSB) and the Catapults, British entrepreneurs are being badly let down by a lack of access to financial support and a system that often forces them to sell out to private equity investors or larger foreign companies to get ideas off the ground."

Proper financing was highlighted as one of the primary concerns in the report. For instance, the committee found that entrepreneurs are too often being forced to seek private equity investment, which means that small companies are being bought up by larger overseas companies before they can develop into the medium sized enterprises that would produce substantial jobs and wealth in the UK.

The MPs said that the government may find it more beneficial to support and develop these entrepreneurs into small and medium businesses, rather than spending its time trying to attract large companies from overseas to the UK.

One of the main problems with financing is that regulation to de-risk pension funds has inadvertently closed off a long-term source of capital for firms that need time to develop technologies.

The committee found that government grant funding is often highly bureaucratic to apply for and is only enough to 'get an idea off the ground'. Also, despite government efforts to encourage bank lending to business, these schemes often require entrepreneurs to provide family homes as security to obtain the loan.

"Equity investments have a place, but too many companies are forced into over-reliance on this route because other types of funding are unavailable," said Miller.

"Pension funds used to be a source of patient capital for firms that needed time to bridge the so-called 'valley of death' and get new technologies to market, but regulation has changed the way they operate and restricted this sort of finance."

He added: "The Government needs to look at how it can provide the infrastructure to support innovation by ensuring small technology firms have access to finance, facilities and advice."

The report states that there needs to be a coherent strategy across the whole of UK industry to provide UK business with confidence in where they might expect government support for the medium and long term - whether through fiscal policies or R&D focus.

Ministers need to make choices in terms of which sectors to prioritise when assisting R&D investment, said the committee.

Michael Kent, founder and CEO of social money transfer platform Azimo has set up two fintech companies and is a former advisor to Vince Cable. He believes that much of the problem stems from the government's ongoing plans to curb immigration.

"I don't support more state intervention to support any industry - even technology, as the government tends to screw up most resource allocation decisions. That said, a broadening of the Enterprise Capital Fund schemes whereby sensible investors get a remit to equity invest their own money, which is then turbo-boosted by state funding, is great," said Kent.

"But actually, it's all window dressing. The huge worry right now is the lurch to the right and rhetoric on immigration and Europe."

He added: "Further immigration caps make the UK an unattractive place for the world's brightest and best and cutting off access to the largest global trading block makes the UK a sideshow. That's what will ultimately let down technology and all entrepreneurs in the UK."


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