2021 Immigration Changes

Given the coronavirus pandemic, it’s understandable that the upcoming changes to immigration rules will be low down in priority, but for some, having the right talent will be essential for bouncing back when things return to something closer to normality.

On 19 February 2020, the UK government announced the upcoming changes to the UK’s points-based immigration system that will come into effect from 1 January 2021 after the freedom of movement with the EU ends on 31 December 2020, although, in light of the Coronavirus pandemic, there is a real possibility that the UK might extend the transition period beyond 31 December 2020. As per UKVI, “this new immigration system will treat EU and non-EU citizens equally and will aim to attract people who can contribute to the UK’s economy.”Below is a summary of the upcoming changes.

Tier 2 (General): The Tier 2 visa  is an employer sponsored visa route which allows skilled migrant workers to enter the UK on a long term basis to fill a skilled job vacancy.

• Regulated Qualifications Framework (RQF) level: In order to sponsor a migrant under the Tier 2 (General) visa route, employers are required to offer a role that is RQF level 6 (roles skilled at a Degree level) or above as per the current immigration rules, however, when the new immigration system launches in 2021, the threshold for the RQF level requirements is being dropped to RQF level 3 (roles skilled at an A level). This means medium-skilled jobs (except those that are on the Short Occupation List) that sit below RQF level 6 and are currently not eligible to be sponsored under the Tier 2 (General) visa route will also be eligible. While this will be a welcome change for some employers offering medium-skilled jobs, this threshold will not include lower-skilled jobs which remain an important issue for affected sectors such as hospitality, construction and social care.

• Minimum salary: Currently migrants must be paid a minimum of £30,000 per annum (experienced workers) or the ‘appropriate rate’ for the type of job – whichever is higher. Similarly, for new entrants, a minimum salary of £20,800 per annum or the ‘appropriate rate’ for the type of job – whichever is higher must be paid to meet the required salary threshold for a Tier 2 (General) visa. In the new immigration system, this salary threshold is being dropped to £25,600 per annum for experienced workers and £17,920 for new entrants. Also, certain jobs that pay less than £25,600 but no less than £20,490 per annum, may still qualify by trading points on specific characteristics. This change will be particularly welcomed by employers based outside of London.

• Resident Labour Market Test (RLMT): Abolishing the RLMT or waiver of advertising to prove that an employer is unable to find a suitable settled worker may be the most welcome change announced by the UK Government in the new immigration system of 2021. This change will allow employers to choose migrant workers from a wider pool of skilled workers and will make the current cumbersome process of hiring a migrant worker much simpler and quicker as they will no longer need to advertise the job for 28 days.

• Cap on Tier 2: The 20,700 cap on the Tier 2 (General) visa applications will no longer be applied. This will avoid  the chaos of 2018, when the Tier 2 (General) monthly Certificate of Sponsorship (CoS) allocation limit was reached in consecutive months. This made it incredibly difficult for many employers to hire migrant workers whose salary wasn’t ‘high’  (£46,000 per annum or more) enough or those that were not filling shortage roles or undertaking PhD level jobs. Although this issue didn’t affect employers in 2019 because Doctors and Nurses were eventually taken out of this cap, abolishing the cap on the Tier 2 (General) visa applications sends the right signal to the rest of the world. 

Immigration Health Surcharge

In 2015, the UK government introduced the Immigration Health Surcharge (IHS) which is yearly a healthcare surcharge charged to non-EU migrants if they are coming to the UK for longer than 6 months to allow them to use the NHS. This charge was £200 per year per migrant in 2017, it then doubled in 2019 to £400 per year and now the Chancellor has announced that as of October 2020 this will go up to £624 per year. The measure also increases the discounted rate for students, their dependents and those on the Youth Mobility Scheme from £300 to £470 per year and will be set at £470 per year for all children under the age of 18. This charge will also be expanded to include EEA migrants when the new immigration system comes in to play in January 2021.

The Government promised to increase the IHS in its manifesto during the 2019 general election campaign, so it is no surprise that Rishi Saunak announced this change in his budget speech last week. Under these new changes if a migrant was applying for a 5-year visa, they would need to pay £3,120 for just IHS alone, alongside the already exorbitant UKVI fees. The increasing costs of the UKVI visa fees and the IHS sends a message that unless migrants have deep pockets they are not really welcome in the UK.

Graduate Visa

After abolishing the very successful two-year Post-Study Work (PSW) visa route in 2012, international students can breathe a sigh of relief as the government is introducing a Graduate Immigration visa route in summer 2021. 

Eligible international students who graduate in the summer of 2021, or after, will be able to take advantage of this visa route. The details of how this visa route will work have not yet been disclosed. If this visa is meant to work like the PSW visa, it will allow international students in the UK who complete a degree level course or above at a Higher Education Provider to remain in the UK and look for work or undertake unsponsored employment with no minimum skill or salary level.

International students or graduates who either do not complete a degree level or above course in the UK or whose Tier 4 (Student) visa expires before this route is introduced can continue to take advantage of the Tier 5 Government Authorised Exchange route which allows them to seek internships with UK employers for little as 4 weeks up to a maximum of 24 months.

What Next?

UK employers should plan for their workforce requirements ahead of January 2021 and consider applying for a Tier 2 Sponsorship Licence now especially if their business relies on migrants (EU and non–EU). A sponsor licence application is usually approved within three to six weeks or it can take up to eight weeks if the UKVI decides to audit the business before issuing the licence but given the unprecedented demand for these sponsor licences, processing times are likely to increase even more. 

Finally, as Leonard Cohen said that “there’s a crack in everything, that’s how the light gets in” – I appreciate the steps this government is taking to reform the current immigration system won’t go far enough for many business owners, but there’s light at the end of the tunnel.

Zenia Chopra is Adviser to The Entrepreneurs Network and works in the Immigration department of Kingsley Napley.

On a Budget

Coronavirus is dominating everything, but the response isn't universal. Our Government is taking a different tack to most countries by not employing strong social distancing.

Many disagree with this approach, including former health secretary Jeremy Hunt, who said: “I think it is surprising and concerning that we’re not doing any of it at all when we have just four weeks before we get to the stage that Italy is at.”

I’m not qualified to comment on whether or not our Government is doing the right thing, but it’s fair to say that its increasingly vocal critics will only get more so if it turns out to have been the wrong approach.

Mitigating the economic impacts of coronavirus was understandably the focus of Chancellor Rishi Sunak’s Budget. As we suggested prior to the Budget, business rate rebates and time to pay schemes were put in place by the Chancellor.

Our Research Director Sam Dumitru has written a concise Policy Update on the Budget, which I recommend you read and share with other business owners. It covers all the main announcements and how they might impact your business.

Many business owners were concerned about Entrepreneurs' Relief being scrapped. It wasn’t, but the lifetime limit was scaled back from £10m to £1m. This means that it won’t really impact the Enterprise Management Incentive (something that we were particularly concerned about), but as Chris Sanger argues in the letters of the FT, the policy was about keeping successful 'rainmakers' in the UK, "so that they go on to start up more new businesses or become business angels, fuelling more growth and employment in the UK.” 

And as I argue in the Guardian: “Entrepreneurs’ Relief is widely understood and cited as part of a package of incentives that helped [foreign-born entrepreneurs] decide to start their business in the UK, or move it here.”

There’s certainly an argument about whether there is a more efficient way to get what we want than a blanket reduction in Capital Gains Tax, but this cut doesn’t get us anywhere closer to that.

Patently obvious
Our new researcher, Dr Anton Howes, wants to know if there are any patents in your sector/industry that you feel currently hold back your industry. If something springs to mind – past or present – drop him an email.

Unlocking growth
I don't want to bang on about it, given you probably already know all about the Unlocking Growth report we released this week with the Enterprise Trust. But just to update, it was covered in The Telegraph, here and here, City AM, and CapX.

You can read the rest of the newsletter here, and sign up here.

Budget 2020

What does the Budget mean for entrepreneurs?

Welcome to our latest Policy Update. In these updates, The Entrepreneurs Network focuses on recent policy development and sets out (nearly) everything an entrepreneur needs to know about the topic. If you’re joining us for the first time, you can read our past updates here. 

Rishi Sunak delivered the first budget in a year and a half, and there was a lot for small business owners and entrepreneurs to take in. Understandably, the Government’s response to covid-19 took precedence but the budget contained a lot (good and bad) for entrepreneurs, from the scaling back of Entrepreneurs’ Relief to boosts for the R&D Tax Credit and employment allowance. There were also a few consultations and reviews announced that might be relevant to your business, in areas such as fintech and EMI.

In this update, we’ll cover all three areas and link to information useful to your business.
 

The Budget

Support for SMEs affected by covid-19

Rishi Sunak framed his Budget as ‘Security Today, Prosperity Tomorrow’. The focus was on protecting jobs, by ensuring businesses don’t unnecessarily go bust during the crisis, leaving long-term economic ‘scarring’.

The measures were targeted and temporary. They cost a combined £12bn, which is relatively little in contrast with measures announced elsewhere such as Trump’s $1tn USD payroll tax cut, but on a par with the stimulus package announced in Australia. The measures aren’t designed to prevent a demand shortfall (the Bank of England is expected to do that) but rather to protect at-risk businesses.

Business Rates

At the previous Budget, pubs, shops, restaurants and cafés in England with a rateable value of less than £51,000 received relief worth 30% of the annual rates bill. In January, it was announced to rise to 50%. To address the covid-19 disruption, Sunak has expanded the relief further to 100% for one year. The relief will be expanded further to the leisure and hospitality sectors. In total, 900,000 properties (45% of all properties) will pay zero business rates in 2020-21. For pubs that do not qualify, the special discounted rate for pubs will be temporarily increased to £5,000. 

If you currently pay little or no business rates, because your only property has a rateable value of less than £15,000, you will receive a £3,000 payment. That’s equivalent to three month’s rent.

Business Interruption Loans

The Government is launching a temporary Coronavirus Business Interruption Loan Scheme to support businesses to access bank lending and overdrafts. 

The Government will provide lenders with a guarantee of 80% on each loan (subject to a per lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The Scheme will support loans of up to £1.2 million in value, and you can qualify provided your annual turnover is no more than £41 million and you are not in a restricted sector (most sectors qualify, but EU state aid rules restrict export-related activities).

The full details of the scheme are still being sketched out. You can find more info on the British Business Bank’s website, where they’ll identify the lenders that will partner on the scheme in the coming weeks.

Time to Pay

If your business is in financial distress and has outstanding tax liabilities, you can apply to HMRC for a time-limited deferral period on tax liabilities with a pre-agreed time period to pay these back. They’ve been used in the past to keep businesses afloat during floods. HMRC has made a further 2,000 experienced call handlers available to support firms when needed. If you think you need support due to Coronavirus, you can call the dedicated coronavirus helpline on 0800 015 9559.

Statutory Sick Pay

Statutory Sick Pay (SSP) will start from the first (not fourth) day of absence and will apply to anyone who is unable to work because they have been advised to self-isolate, as well as people caring for those within the same household who display COVID-19 symptoms and have been told to self-isolate.

For SMEs (250 employees or less), the Government has announced it will refund statutory sick pay in some cases. The refund will be limited to two weeks per employee and will allow employers to reclaim expenditure for any employee who has claimed SSP (according to the new eligibility criteria) as a result of COVID-19.

As existing systems are not designed to facilitate such employer refunds for SSP, the Government is working to set up a repayment mechanism.

Changes to the tax system

Entrepreneurs’ Relief

The most newsworthy tax change at the Budget was the move to cut Entrepreneurs’ Relief from £10m to £1m. This was trailed ahead of the Budget and changes were discussed in the Conservative manifesto. Around 80% of businesses and most employees with share options will be unaffected by the change. Entrepreneurs who exceed the limit will instead pay Capital Gains Tax at a 20% rate.

It is likely this isn’t the end of tinkering with Entrepreneurs’ Relief. Andy Summers at the London School of Economics notes that many of the most egregious abuses of the relief are unaffected by the change. Expect further anti-avoidance measures in the coming years. Arguably, these should have been the priority instead of the threshold change.

Manifesto Pledges

If you read our last policy update on the election manifestos, you’ll recognise the following measures, which were all pledged in the Conservative Manifesto.

• The NICs Employment Allowance to £4,000. Businesses will be able to employ four full-time employees on the National Living Wage without paying any employer National Insurance contributions (NICs).

• The rate of Research and Development Tax Credit will increase from 12% to 13% from 1 April 2020.

• The rate of the Structures and Buildings Allowance will increase from 2% to 3%, benefiting businesses investing in new commercial buildings.

• Plans to cut Corporation Tax to 17% have been scrapped.

Alongside the pledges, there was also news that the planned SME R&D Tax Credit cap would be delayed for another year. It will be introduced at a level of three times the company’s total PAYE and NIC bill.

Penny for your thoughts?

As is tradition, alongside the tax changes the Budget also announced a number of consultations. They cover:

• Fintech: Former WorldPay Executive Ron Khalifa OBE will lead a review into the fintech sector. The review will identify what more industry and government can do to support growth and competitiveness, to ensure that the UK maintains its global leadership in this vital sector.

• EMI: The government will review the EMI scheme to ensure it provides support for high-growth companies to recruit and retain the best talent so they can scale up effectively, and examine whether more companies should be able to access the scheme. In our Startup Manifesto, we called for the employee cap to be lifted to 500 and the asset cap lifted to £100m.

• Business Rates: The government is launching a fundamental review of business rates to report in the autumn. In our report for the APPG for Entrepreneurship, we argued for shifting to a commercial landowner levy. You can find the terms of reference here.

• R&D Tax credit: The government will consult on whether expenditure on data and cloud computing should qualify for R&D tax credits. We called for them to allow such costs to qualify in our Startup Manifesto.

If you follow our regular e-bulletin, we’ll let you know when the calls for evidence are open, we of course will be responding too.

We’ll make sure to keep you up to date on any other policy changes we spot in upcoming newsletters. To receive these, make sure to sign up here.

Capital Ideas

I held off sending out last week’s newsletter to coincide with today’s launch of our latest report. Unlocking Growth: How to Expand Access to Capital evaluates the funding options open for SMEs and identifies key reforms to boost SME’s access to capital.

It has been undertaken in partnership with the Enterprise Trust – a brilliant charity that aims to help individuals of all ages and from all backgrounds realise their potential as independent wealth generators.

You can read Richard Harpin, the founder Homeserve (and the Enterprise Trust), in City AM today with his thoughts on the report.

The report makes seven policy recommendations:

1. Experiment with lottery-style funding to channel more grant-funding to startups.

2. Simplify and modernise the R&D Tax Credit by providing better feedback for applications and expanding the score of activities that qualify as R&D.

3. Make data sharing obligatory for incubators and accelerators receiving public funding.

4. Provide more long-term patient capital through the British Business Bank.

5. Improve the mentoring offer for Start Up Loans by providing additional mentoring when businesses finish paying their loans.

6. Streamline the advanced assurance process for EIS and SEIS to unlock more investment in high-growth startups.

7. Unlock additional investment into venture capital from defined-contribution pensions by reforming the fee cap and clarifying rules on the valuation of illiquid assets.

If you like the look of these ideas – we would appreciate a retweet.

Unlocking Growth also doubles up as an introductory guide for anyone looking to raise finance, and is packed with some great advice from some of our Members, Supporters and Advisers. Here’s a flavour of some it:
 
Tammy Kolowski, Co-Founder of NAF! STUFF on securing the Scottish Edge grant:
“I’d urge anyone out there looking for funding to look into your options and shop around. I used to use instant loans as a quick and easy option, and I was always scared of “answering to someone” or getting feedback about my business plans. Those loans worked for me at the time but the interest was high and I didn’t quite understand the value of taking the time to assess how the funding (and possible repayments) would impact my business in the future.”

Jacob Thundil, Founder of Cocofina on raising Peer-to-peer Finance:
“When we recently asked for a small bank guarantee to provide to HMRC our relationship manager discouraged us by saying that they needed to run credit checks etc. when they have the whole history of trading over the last 15 years right in front of them. [With peer-to-peer lending] there was a more open conversation and feedback compared to a mainstream bank, which might not want to have a transparent dialogue on the qualification criteria.”

Richard Mabey Co-Founder of Juro on Venture Capital
“Given our product ambition, we knew we would need a heavy R&D spend to ensure we really executed in the right way on the product before commercialising it. Now that the market we are in is seeing significant growth, the funding also allows us to grow headcount far faster than we could if we were bootstrapping from revenue.”

Coronavirus response
Thousands have already died from the Coronavirus and the global loss to real GDP is predicted to be around $US2.3 trillion. In facing the crisis, the work of entrepreneurs will be vital.

Self-isolation is going to hit some sectors particularly hard. It would be a mistake to let otherwise viable companies go to the wall. As Paul Johnson from the IFS suggests: “This could mean giving more generous payment terms to businesses for some taxes such as business rates and employer NICs.” He also thinks that the government, with the Bank of England, could work with the financial sector to avoid banks foreclosing on businesses in temporary difficulties. 

Keeping otherwise viable businesses afloat should be a key priority for the government. Failing to do so may cause long-term damage to productivity. The following options should be on the table for the government:

• Business rate rebates aimed at specifically affected sectors (e.g. venues, restaurants, hotels). 

• Expanded access to HMRC Time to Pay Agreements for affected businesses (e.g. allow people to postpone tax payments).

• Cooperation with banks to avoid unnecessary failures for indebted businesses.

• Using Universal Credit (assuming the systems are up to it) to support gig workers, who are at the biggest risk of losing income.

Future proofing
Taking a step back from the immediate challenge, Azeem Azhar thinks this should be a wakeup call for governments. To better cope with the next Coronavirus (or worse) he thinks we need to: invest in early warning systems, make supply chains more robust, increase investments into scientific and medical research, and engineer cities to be more self-sufficient.

While public health is a ‘government-sized problem’, entrepreneurs will integral to delivering this.

Azhar also calls for more open data, which can increase trust and confidence for a population dealing with a pandemic. Just look at the data available to the citizens of Singapore. 

We have a long way to go, but a recent trip to Estonia renewed my hope in the future. I met with Taavi Kotka, former CIO of Estonia, who has a 115-step blueprint for how Estonia went from a post-Soviet state with limited internet access and population with no digital skills to being one of the most advanced digital states in the world.

I’ve written about Estonia here, here, and here, but my latest thoughts on what we can learn from Estonia are for another day. 

Now is the time for the Government to act swiftly.

Read the whole newsletter here, and sign up today.

How government can unlock funding for UK entrepreneurs

Unlocking Growth, a new report from The Entrepreneurs Network and The Enterprise Trust, highlights a range of policies to ensure more entrepreneurs can access the finance they need.

• The funding picture for SMEs is mixed: while access to traditional bank loans has been limited since the global financial crisis, we’ve seen a dramatic increase in equity investment – up from £1.6bn in 2011 to £12bn in 2019.

• SMEs have benefitted from the rise of alternative finance. Over £2bn is lent through P2P lenders and close to 400 equity crowdfunding deals take place in the UK each year.

• However, many entrepreneurs fail to access the finance they need. The best available data suggests almost one in ten (9.1%) of SMEs are discouraged from seeking external finance.

• This causes an estimated £1.5bn in lost investment by SMEs (£11,439 per discouraged business). As a result, fewer jobs are created and businesses can fail unnecessarily.

Policy recommendations include:

• Reforms to make it easier for pension funds to invest in venture capital to enable more of the UK to benefit from equity investment.

• Better mentoring for Start Up Loans to address why too few seek external finance again once their loan has been repaid.

• Streamlining the process to access tax-relief on investments in early-stage firms to avoid unnecessary cashflow crunches.

Although the financing options and tax incentives open to UK SMEs are improving year-on-year, almost one in ten small businesses are still not seeking the external capital that would allow them to grow, a new report reveals.

Unlocking Growth: How to Expand Access to Capital, a joint report from The Entrepreneurs Network and The Enterprise Trust, evaluates the funding options open to SMEs – from Start-Up Loans and grants to equity crowdfunding and peer-to-peer lending. The report identifies policy changes that will ensure businesses can access the finance they need to grow.

While traditional lending is down, according to the British Business Bank, the bank is still the first port-of-call for SMEs seeking finance.  It’s only once entrepreneurs have been turned down by the bank that they investigate other types of lending, including equity investment. These alternative forms of finance are effectively filling the gap. 

According to Beauhurst, the demand for equity investment via venture capitalists has exploded.  In 2011 the figure stood at £1.6bn; last year it reached £12bn. 

Despite this, figures suggest 9.3 per cent of all SMEs fall into the category of so-called ‘discouraged borrowers’, businesses with a real need for finance, who fail to apply due to fear of rejection, a belief that raising capital would be too expensive, or concerns the process would be too difficult or time-consuming. 

This leads to an estimated £1.5bn SME investment shortfall, or £11,439 for each discouraged firm.

It also leads to fewer jobs and weaker economic growth through a lack of investment in workforce skills, investment in new technology, and investment in international expansion.

Joy Foster, founder of TechPixies, a digital training firm for returning women, raised £150,000 through EIS and SEIS, but admits she almost didn’t and considered walking away because she was daunted by the amount she needed to raise with ‘no guarantee’ she could pay it back.. 

Similarly Francis Toye, founder of justice software firm Unilink describes not knowing how to grasp opportunity until he joined the Goldman Sachs 10,000 Small Businesses programme and raised £1m through Funding Circle and then another £7m through defined payment terms.

This report makes the case for key policy changes that would unlock new funding opportunities for entrepreneurs including increasing VC capital flow by reforming the way defined contribution pension funds invest or fast-tracking EIS and SEIS applications.

Increasing mentoring to Start Up Loan recipients, who tend to be among those described as ‘discouraged borrowers,’ could also help deliver growth.

Richard Harpin, founder of the UK’s leading home repairs and improvements business HomeServe and new ‘think and do tank’ The Enterprise Trust, said: 

“All evidence points to the fact that businesses that take on investment at key moments in their growth trajectory do dramatically better than those that don’t.

“These founders go on to create jobs, generate taxes and contribute to UK economic growth.

“Yet, navigating the funding sphere has often become so difficult that it has left nearly 10% of founders discouraged from raising the finance they need to survive and thrive.

“It’s clear that finance is out there, with a dramatic uptake in Start Up Loans, equity finance and crowdfunding.  However, it is also clear that this capital is not always getting to where it needs to be. We need to change that.”

Sam Dumitriu, Research Director of The Entrepreneurs Network and author of Unlocking Growth: How to Expand Access to Capital

“By helping small businesses manage cashflow, invest in better equipment, and expand into new markets, access to the right type of finance can be transformational.

“The meteoric rise of alternative finance and VC should be celebrated, but still too many businesses fail to access the finance they need to grow. 

“Reforms to reduce wait-times for early-stage investment tax reliefs and allow pension funds to invest more in venture capital will allow more businesses across the UK realise their growth ambitions.”

Full Policy recommendations:

• Experiment with lottery-style funding to channel more grant-funding to start-ups. New Zealand’s Health Research Council uses this approach to allocate funding to proposals that are “transformative, innovative, exploratory or unconventional, and have potential for major impact” and it works well.

• Simplify and modernise Research & Development Tax Credits by providing better feedback for applications and expanding the score of activities that qualify as R&D. It could be improved on three fronts: feedback, speed, and scope. Solving these problems would enable more start-ups to benefit from the relief and reduce the risk of theirs turning to specialist tax credit advisers who can take up to 25% of the relief claimed.Make data sharing obligatory for incubators and accelerators receiving public funding. This will allow us to identify the most successful programmes, and better understand why they work. It will also allow us to identify the schemes best at expanding access to entrepreneurship among disadvantaged or under-represented groups.

• Improve the mentoring offer for Start Up Loans by providing additional advice when businesses finish paying their loans. The programme’s evaluation found high numbers of discouraged borrowers among participants.

• Streamline the advanced assurance process for EIS and SEIS to unlock more investment in high-growth start-ups so businesses using the pre-approved documentation could be fast-tracked and delivery more efficient.

• Unlock additional investment into venture capital from defined-contribution pensions by reforming the fee cap and clarifying rules on the valuation of illiquid assets. In the US, VCs invested more than 10 times as much as UK VCs in 2017. This is partly explained by the impact of pension fund investment in venture capital. In the US, VCs are overwhelmingly (98%) funded by institutions such as pension funds, insurance companies, and endowments. Pension funds play a much larger role in the US. They contribute 65% of the capital in the US VC market and 18% in Europe, but just 12% in the UK.

• Provide more long-term patient capital through the British Business Bank. The government should encourage the British Business Bank to investigate if funds can be better directed towards solving market-failures. For instance, there may be a case for prioritising investments in regions under-served by venture capital or tying funding from the BPC to support for start-up community building, such as training for emerging fund managers.

Reaching out

Fewer than one in five equity investments made in 2018 went to startups with at least one female founder. As a result, women are under-represented in high-growth entrepreneurship. The equity funding gap has myriad causes, from a lack of role models and mentoring to biases in the investment industry. As VC investors often rely on referrals and face-to-face introductions, access to networking opportunities could be a powerful tool for closing the gap.

However, a new study from Sabrina Howell and Ramana Nanda finds simply expanding networking opportunities by exposing female entrepreneurs to more VCs isn’t sufficient to solve the problem.

To test the idea, they looked at Harvard Business School’s (HBS) New Venture Competition (NVC).

“In the first round of the NVC, each team is assigned to one of about 15 panels, each composed of about six judges. Having delivered a pitch to the judges and answered their questions, the participants are in a position to reach out to the judges after the competition, leveraging the connection to secure financing for their ventures. The competition does not, however, explicitly encourage such follow-up. The core dataset for our analysis consists of comprehensive team and judging information for HBS NVCs held between 2000 and 2015, comprising 964 participants. 

Our research design exploits random variations in the number of VC judges across panels, which arises from the way judges are allocated to panels in the NVC. Specifically, assignment is random conditional on sector, which is to some degree taken into account.”

If exposure to venture capital was enough to close the gap, then we’d expect the students exposed to more VC judges to be more likely to get equity funding. But Howell and Nanda found that exposure to VCs only boosted VC-backed entrepreneurship among male students.

Why does exposure to VCs help men, but not women? Men were twice as likely as women to “proactively reach out to VC investors” after the competition. Interestingly, the researchers find VCs are no more likely to respond to male entrepreneurs reaching out to them. Similarly, VCs reached out to men and women at the same rate. They also find little evidence of explicit bias from VCs.

“We do not find obvious evidence of explicit bias by male VCs against female participants in our sample. In addition to VCs responding to outreach equally by participant gender, we show that the private scores of VC judges are in fact slightly lower for male-led ventures than for women-led ventures. Also, while there are too few female VC judges to establish precise effects by a judge’s gender, we do not find evidence that female VC judges are differentially beneficial for female participants. Still, less observable discrimination may be at play, and the lack of outreach by women could reflect expectations of bias or harassment.”

Two key things need to happen to narrow the gap. First, female founders should be encouraged to reach out more. To that end, mentoring and networking may help build confidence. Second, organisations like accelerators should take a more hands-on approach to facilitating networking opportunities. It’s not enough to simply expect people to send emails after events. Closing the gap will require more than exposure alone.

Bank On It

Yesterday, the British Business Bank released its latest Small Business Finance Markets Report – a comprehensive assessment of finance markets for smaller businesses.

The report finds evidence that the current period of uncertainty is pushing small businesses to use external finance to put in place contingency plans, or reduce finance requirements as they delay longer-term investment and expansion decisions.

Although 56% of SMEs don’t expect the UK leaving the EU will impact the growth of their business, the number expecting it to have a negative impact has risen to 29% from 22% in 2017. Just 5% expect their business to grow more because of it.

And just 36% of smaller businesses now use external finance compared to 44% in 2012, with over 7 in 10 firms saying they would rather forgo growth than take on external finance. However, equity finance, asset finance and marketplace lending have grown by 4%, 3% and 18% respectively, and awareness of alternatives to traditional finance has continued to grow, with 52% of small businesses aware of peer-to-peer lending, 70% aware of crowdfunding platforms and 69% aware of Venture Capital (up from 47%, 60% and 62% respectively in the previous year).

For those still looking to learn more about finance options, our friends at Intelligent Partnership have just released a NIFTY guide which might be useful.

You’ve got mail
The Daily Mail has got in touch as they’re looking for case studies to coincide with the Budget. They are particularly keen to speak with entrepreneurs who could be affected if Entrepreneurs’ Relief was to be cut. You would need to be willing to chat to them and be photographed. Just let me know if you’re game, and I’ll connect you to the journalist.

Expanding horizons
The government is creating a Regulatory Horizons Council – a new expert committee that will advise the government on emerging technologies and the regulatory reform needed to support their introduction. 

They are looking for experts in health and life sciences; digital, data and cyber; engineering and energy; innovative business models; and citizens and the environment. It’s 1-2 days per month (£380 per day) and the application deadline is 23rd March. 

I think it’s vital that these sorts of roles are filled by our very best and brightest talent, which is why they should probably pay a bit more. But hopefully civic duty is enough to attract the right people. Please share widely. Find out more.

Officers and a Gentle Plan

The All-Party Parliamentary Group for Entrepreneurship is back! 

We are relaunching the APPG in the House of Lords on Tuesday morning with Andrew Griffith MP, the Prime Minister's Chief Business Adviser. You might still be able to get a ticket if you’re quick.

Lord Leigh of Hurley, who is a successful entrepreneur in his own right having co-founded Cavendish Corporate Finance, and Bim Afolami MP, touted by the BBC as a rising star, have joined as Officers. We also have loads of new MPs and Peers as Members.

We are the Secretariat of the APPG, which means it’s our job to help ensure Parliament and the Lords are kept updated about what entrepreneurs need to thrive. To this end, we will be hosting a series of roundtables on all matters related to entrepreneurship – all of which will be written up into snappy briefing papers to inform policymakers. We will build sponsored roundtables around core activity based on the brilliant research of the Enterprise Research Centre (ERC). Get in touch if you want to get involved.

We don't want to hog the APPG. It should be for everyone supporting entrepreneurs. That's why the APPG will launch the research of other organisations' doing interesting work on entrepreneurship. First up, the APPG is co-hosting an event with Lord Howard Flight and the Enterprise Investment Scheme Association (EISA) on this vital tax break for entrepreneurs. Drop Mark Brownridge an email to enquire about a place. And watch this space for a paper launch with Tech Nation.

You can read the minutes from the APPG AGM minutes here.

Factory tax
This week, our Research Director Sam Dumtiru had a report out on full expensing – making the case for abolishing the so-called 'Factory Tax'.

We are currently ranked 33rd in the OECD on the Tax Foundation’s Capital Cost Recovery index, discouraging entrepreneurs investing in capital. This is hitting manufacturers in the Midlands and North particularly hard (hence calling it the 'factory tax'). 

For over two decades, the UK has had the lowest level of private investment in fixed capital as a share of GDP in the G7. This can be turned around by letting businesses fully deduct the costs of investments in equipment by accounting for inflation and a real return on capital.

Allowing businesses to immediately write-off capital expenditures would boost investment by 8.1% and labour productivity by 3.54% (£2,214 per worker).

In the Telegraph (Paywall), Ryan Bourne backs Sam's plan, and The Times (Paywall) is convinced, concluding that the new Chancellor, “Mr Sunak will come across worse ideas.”
 
In a spin
Our friends at Beauhurst have revealed that investment into university spinouts declined in 2019 (£1.24 billion), compared to 2018 (£1.38 billion).

The drop-off – which isn’t reflected in overall equity investment activity – has been particularly acute for foreign investors. “The UK’s spinouts secured fewer deals with international investors in 2019 compared to the previous two years, and the value of the deals they were involved also declined. Most foreign-backed deals were backed by US funds, but even these investors halved their deal activity compared to last year.:

Hopefully it's a blip, not a trend.

Startup Manifesto: Protect encryption from politicised attacks

Policy 21: Protect encryption from politicised attacks

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’re sharing the policies on our blog. To read the full manifesto, click here.

As every technologist knows, policymakers have a tendency to judge the web by the worst abuses of it, and try to legislate it accordingly. That’s certainly the case with encryption, which is routinely singled out as the cause of everything from child abuse to terrorism. In recent months, DNS over HTTPS encryption has come in for particular criticism by MPs who believe that it will undermine the CSE filters provided by the Internet Watch Foundation. This has led to some of them setting up a zero-sum argument: the UK can have child protection or data protection, but not both. In light of the blanket surveillance of everyday internet use called for in the Online Harms framework as well as the Age Appropriate Design Code, that zero-sum argument could become a very dangerous one.

We want policymakers to look at the wider picture with cooler heads. DNS over HTTPS encryption fills in the gaps which leave all web users at risk. It adds a layer of encryption to one of the last remaining fundamental technologies of the web, strengthens protections for users at risk of government censorship, and can help provide user anonymity for vulnerable people who need to stay safe online. It also makes the web a safer place to do business. Despite all that, the UK government is the only government seeking to reverse this technical direction of travel on ideological grounds, risking a British internet which works to its own set of technical standards.

DNS over HTTPS is not a risk to children or the CSE monitoring frameworks which protect them. The solution to those issues lies elsewhere. Encryption must remain end-to-end, and encrypted DNS technologies should not be the subject of legal blocks or filters.

It's also critical that policymakers don't insist that platforms and providers provide "backdoors" for law enforcement to bypass encryption. A backdoor to one phone is a backdoor to all.

Startup Manifesto: Work with startups to shape tech regulation that promotes competition, not stifles it

Policy 20: Work with startups to shape tech regulation that promotes competition, not stifles it

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’re sharing the policies on our blog. To read the full manifesto, click here.

Further regulation of internet platforms now seems inevitable. But as the Government themselves have admitted, there isn’t a one-size-fits-all framework for tackling the challenges that have risen along with tech platforms (though that doesn’t stop them seeking one…).

One thing is clear: there is a real risk of poorly designed regulation hitting startups harder than the tech giants that the government is aiming at. Where European watchdogs thought that regulation would balance the market, it has actually tilted it further towards the tech giants. Investors agree: 86 per cent of UK investors surveyed worry that policies aimed at tech giants could hit startups harder than their intended targets.

Startups have already struggled under the weight of legislation such as the EU’s General Data Protection Regulation, and are likely to see it again with the recently passed Copyright Directive. The UK’s dozens of committee reports, draft frameworks, working groups, and proposed legislation muddy the waters even further. So whether it’s the domestic Online Harms framework’s proposals on subjective harms, the Digital Charter’s multiple areas of focus, or the EU’s review of intermediary liability provisions in the forthcoming Digital Services Act, the next government needs to be mindful of the impact that sweeping regulation can have on startups. 

That’s also why it’s so important for the next government to take heed of the Furman Review’s findings into digital competition on regulation - and that it doesn’t just cherry-pick the bits it likes. Professor Furman and the panel warned that regulations could “cut across each other if taken forward in isolation”, and that government “should ensure that pro-competition aims and functions are aligned with others, and that the regulatory landscape for digital businesses is kept simple”.

Now the tide of public perception is turning against the tech giants, they are building a regulatory moat to protect their interests - because they are large and profitable enough to do so. The next government should not inadvertently help them by drafting punitive regulation which can only miss its target.

Startup Manifesto: Redraft the Age Appropriate Design Code to be more pragmatic

Policy 19: Redraft the Age Appropriate Design Code to be more pragmatic

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’re sharing the policies on our blog. To read the full manifesto, click here.

Next year the Information Commissioner’s Office plans to introduce its Age Appropriate Design Code, a series of design standards which aim to make the internet a safer place for children. As it’s been drafted, though, the Code won’t quite achieve that - but it will make the UK an impossible place for startups and scaleups to do business. The draft Code’s provisions would require startups to impose mandatory age verification on all sites, regardless of whether their services even target children, and to collect and safeguard all that user data; create up to six different versions of their services for six age bands from infancy to adulthood; and create parental monitoring systems to let children know they’re under surveillance. That’s just the start of a list of sixteen requirements which will put startups in the business of corporate co-parenting first, and their actual business models second. 

The costs for coming into compliance with the age appropriate design code’s requirements, which will include everything from contracting with age verification providers to beta testing privacy policies on preschoolers, will fall entirely on startups to bear themselves, on top of the costs they are already incurring ahead of leaving the European Union. In fact, the compliance burdens are so overwhelming that many non-UK businesses will either leave the UK market or block UK customers altogether.

While we all have a role to play in making the internet a safer place for children and young people, we know that the draft Code isn’t the right way to do it. Startups and scaleups which don’t even target kids will be forced into an absolutely impossible regulatory burden which, appallingly, will define their noncompliance as child exploitation. It’s in everyone’s interest - both startups and kids - to send the Code back to the drawing board.

Startup Manifesto: Revolutionise the way government collects, stores and shares data

Policy 18: Revolutionise the way government collects, stores and shares data

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’re sharing the policies on our blog. To read the full manifesto, click here.

At the extreme, governments’ failure to properly collect, store and share data can destroy individuals’ lives – just ask British citizens caught up in the Windrush scandal. But on a sustained basis, business owners are stymied in their interactions with government, monopolising time that could otherwise be spent focused on running their business.

At present, there is a lack of standards across government leading to inconsistent ways of recording the same data. The National Audit Office has found that more than 20 ways of identifying individuals and businesses across 10 departments and agencies, with no standard format for recording data such as name, address and date of birth.

Tinkering may help, but the next government could and should be more ambitious. Estonia’s X-Road is the model we should shamelessly imitate. The keystone of Estonian digital society since 2001, is “allows the nation’s various public and private sector e-service information systems to link up and function in harmony.” It is estimated that the general savings is around 12 million hours every year. 

Since 2016, X-Road has been available as open source under an MIT License. In fact, the UK was considering using it back in 2013. Finland, Iceland and the Faroe Islands have already adopted the platform. With it’s e-residency card, Estonia even allows entrepreneurs outside the country to start and run a company – which embarrassingly the Mayor of London’s entrepreneurs of the year 2017, Ellenor McIntosh and Alborz Bozorgi, founders of eco-friendly wet wipe brand Twipes, did to avoid Brexit complications.

Estonia’s experiment was a gamble. It could have failed – but it didn’t. We aren’t asking for the next government to take a leap in the dark; they just need to copy what already works elsewhere so Britain’s businesses – and perhaps even those located overseas – can flourish.

Startup Manifesto: Use the Open Banking approach to open everything

Policy 17: Use the Open Banking approach to open everything

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’re sharing the policies on our blog. To read the full manifesto, click here.

Open Banking allows consumers and small businesses to share their banking data via a secure API with approved third parties, and to allow those third parties to make payments on their behalf. Its objective is to “unbundle” banking services from the traditional current account so that bank customers can access third party services, like accounting and payments software, without the need to move accounts.

The Open Banking principle could be applied to other products as well. The FCA is currently considering whether to extend Open Banking-style APIs to other financial products like savings accounts, mortgages and insurance, and BEIS is considering a wider application of data sharing through secure APIs to markets like energy and telecoms as well.

This “Open Everything” approach will have increasing returns as more kinds of data are made available. Many businesses spend lots of time and money managing everyday expenses like energy and telecoms, or end up spending too much because they get stuck on expensive deals. Data sharing would allow them to delegate the task of shopping around to a trusted intermediary. 

It would also unlock valuable data to innovators, with the owners of that data remaining in control of how it can be used and by whom. In energy, for example, data sharing would make demand-side response viable, so that businesses that could help people draw electricity at times of lowest demand, for example by providing home batteries that can charge in the middle of the night, to save huge amounts of money and allow us to move to renewables that might otherwise be unviable because of intermittency.

Office Politics

Sajid Javid will go down as only the second Chancellor to never deliver a Budget.

Javid was forced to resign after Number 10 asked him to replace all of his advisers. I went into Number 11 a couple of times to meet those advisers and they seemed perfectly pleasant to me. I guess it’s easy to get mixed up with office politics in political office.

The new Chancellor Rishi Sunak is well regarded (even by Javid), and makes all the right noises on his website: “I co-founded a large investment firm, working with companies from Silicon Valley to Bangalore. Then I used that experience to help small and entrepreneurial British companies grow successfully. From working in my mum’s tiny chemist shop to my experience building large businesses, I have seen first-hand how politicians should support free enterprise and innovation to ensure our future prosperity.”

Perhaps his father-in-law can offer some advice. He is Infosys founder N. R. Narayana Murthy.

Among other relevant changes for entrepreneurs, the Department for Business, Energy & Industrial Strategy will be led by Alok Sharma MP, with Kwasi Kwarteng MP and Nadhim Zahawi MP staying on in the department. We have private dinners for entrepreneurs in the works with both Kwasi and Nadhim. Drop me a message if you’re interested in finding out more about how you can attend these.

Paper profit
We are starting to distinguish fact from friction(less) trade.

The Government plans to introduce full import controls for goods moving into and out of the EU after the transition period ends on 31 December 2020. All goods entering the UK from the EU will be subject to the same checks and controls as goods coming from the rest of the world – whether or not we reach a trade deal.

You might need an EORI number, or to hire someone to deal with customs. HMRC has extended the deadline for businesses to apply for customs support funding to 31 January 2021. There is still at least £7.5m available.

If you’re looking to export more, the Department for International Trade has just launched a digital tool to help you navigate the rules and restrictions, tax and duty rates, and the necessary exporting documents.

Go west
NatWest has asked us to let you know about their fully-funded Pre-Accelerator, Accelerator, and Fintech Accelerator programmes.

The Pre-Accelerator is for start-ups. The Accelerator is for businesses who are ready to scale their business. While the Fintech Accelerator is sector specific and is run out of its hubs in Bristol, Edinburgh, London and Manchester. The deadlines are fast approaching. Find out more here.

On the case
As my colleague Annabel Denham argued in The Telegraph last year, rail tickets and fares are too inflexible and ill suited to the way an increasing number of us work.

We think The Rail Delivery Group has some good ideas for better ways of regulating the sector, and they are looking for a business person who can speak about this issue.

Perhaps you can’t travel at the time you want because the fares are too high, or you have to book on a specific train to save money but then end up waiting around after a meeting. Or maybe you’ve decided to drive because the train is too busy. Or perhaps you’ve declined a meeting altogether because of the lack of flexibility.

They are looking for people to get in touch as soon as possible, so if it’s an issue you’re passionate about, drop them an email today.

Startup Manifesto: Promote innovation in regulated sectors by creating a cross-sector regulatory sandbox

Policy 16: Promote innovation in regulated sectors by creating a cross-sector regulatory sandbox

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’re sharing the policies on our blog. To read the full manifesto, click here.

Regulatory sandboxes allow new firms to operate outside some existing regulations, many of which are constructed with large incumbents in mind. The success of the UK’s fintech sandbox shows how effective they can be. 

An “n+1 sandbox” could replicate this function across other sectors, issuing five-year provisional licenses to innovative companies with business models that conflict with existing regulations, which could then operate outside those regulations. The companies would be required to take out liability insurance, or in some cases the regulator itself may offer it (at a price) if the private sector would not insure an innovative business.

This approach exists in healthcare already, where treatments may be used in certain circumstances even before they have won full regulatory approval, as well as in fintech to some extent. 

This would have two objectives. The first would be to make it easier for innovative companies to come to market, and test out their propositions without having to worry about regulations which may unintentionally have prevented them from operating. The second would be to highlight regulations that are causing problems and holding back innovation, allowing other regulators to see the costs of their actions that would otherwise be invisible.

Good news – and bad – for women on boards

Regardless of the issue in question, public discourse usually follows a similar pattern. 

Take female representation in business. The status quo is challenged (“why don’t we see more women in senior level roles?”) and momentum gathers for tackling it (“we need more women on boards!”). But then a backlash ensues (“don’t we believe in a meritocracy?”). 

What happens from there can depend on the subject matter. Laurence Fox’s Question Time spectacle suggested “anti-woke” celebrities are threatening the liberal consensus. As one author observed in the Guardian last week, “progressives need to wise up to the fact that they are losing the argument and decide what to do in response”. 

In the case of women in the workplace, Amber Rudd wrote an insightful editorial in The Sunday Times that neatly summarised where we are now. 

It’s all very well, the former Cabinet minister wrote, to suggest that we want the best person for the job regardless of gender, race or ethnicity. But if the best candidate is repeatedly a man, “it has to be challenged. It can’t be a coincidence every time.”

Rudd pivots the debate towards the benefits of diversity. It fosters a “broader mix of experience and priorities, leading to better outcomes.” And in politics, “no one is going to fight for women like a woman”. Hear hear. Rudd writes in the context of the forthcoming reshuffle and the rumours that half of the women in Cabinet may lose their jobs.

But with the news last week that one in three board positions at the UK’s biggest companies is now held by a woman, Rudd’s comments could equally be applied to business. The Hampton-Alexander Review found that 349 women currently sit on the boards at FTSE 100 firms. 

Not only will increased representation help tackle unconscious bias and gender stereotypes around what a leader should look like, but if Rudd is right, these women will commit to boosting other women in business. This desire to pay it forward is apparent in the Female Founders Forum, where members give up precious time to champion, advise and even mentor fledgling female entrepreneurs.

Business Secretary Andrea Leadsom was right to point out that businesses had achieved this target voluntarily and without the need for legislation or fines. Perhaps the spotlight on diversity alone has changed the behaviour of big firms. Countless studies have found that it fosters innovation, creativity and empathy in ways that homogeneous environments seldom do. 

Both Rudd and Leadsom have been criticised in a vitriolic, asinine article that insolently dismisses the role diversity can play in avoiding groupthink, ignores the importance of role models, and paternalistically seeks to tell women what they want – especially when they become mothers.

We need reasoned debate, because all is not rosy. There remains a lack of women in senior and executive roles: they make up just 15% of finance directors, for example. 33% isn’t 50%. But rather than cry foul over discrimination, or shrug nonchalantly (or write deplorable blogs) when there is still a way to go before we achieve gender equality in the leadership of British firms, we should strive for balanced discourse that at once accepts progress made, and work yet to do.

Read more about the Hampton-Alexander Review here. And our views on Women in Leadership here and here.

Startup Manifesto: Secure a Data Adequacy agreement as soon as possible

Policy 15: Secure a Data Adequacy agreement as soon as possible

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’re sharing the policies on our blog. To read the full manifesto, click here.

Data is the lifeblood of the UK’s startups, and that lifeblood must flow freely. After the UK leaves the European Union, we will become a third country to Europe’s data protection framework. This means that while UK businesses will still be able to send data to Europe as before, information flowing from Europe to the UK will require a lot more work.

Without a data protection adequacy agreement, meaning EU recognition of the UK’s domestic privacy framework as one which protects European data to European standards, startups will need contract-based legal structures to cover their data flows. While these contractual structures are easy for large tech companies, they can consume a startup’s time and funding.

The process of evaluating the UK as an adequate third country cannot begin until the UK has left the European Union - you cannot, after all, evaluate a third country which is not a third country yet - and would take no less than a year to adjudicate. Nor is an agreement guaranteed by any means. A range of issues, including the UK’s domestic surveillance programmes, stand in the way of the UK being deemed adequate.

It will be absolutely critical for government to ensure that an adequacy agreement can be achieved, as quickly as possible, to keep the UK’s startups afloat. This will mean remaining within the spirit and letter of the European data protection framework, supporting startups to devise contractual protections at the speed of business, and resolving domestic issues which could block an adequacy recognition.

Startup Manifesto: Devise a coherent regional startup strategy

Policy 14: Devise a coherent regional startup strategy

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’re sharing the policies on our blog. To read the full manifesto, click here.

There has been a growing disconnect between central government and regional tech ecosystems. The needs and requirements of startups in the UK’s wider regions are very different to those situated in London and the South East. Yet there has been a tendency to force top-down reinvented initiatives upon regions which can be detrimental to the local ecosystem. 

The investment landscape across the UK is not uniform and private investment varies from region to region. This is because emerging and innovative funds lack a network of peers and mentors outside London, which increases the perceived risk of investment.  Unlike London and the South East, startups in the wider regions rely heavily on public-backed investment funds. Although some tech clusters have sought to move to a privately financed model because public funds have not proved agile enough, this disengagement from public funding risks leaving large parts of the sector underserved.

To mitigate this risk, we must start to build a nationwide network of peers and mentors outside London for emerging and innovative VC funds to tap into. The British Business Bank’s UK Finance Hub should partner with Capital Enterprise to create a network that could highlight both best practices, and also practices that could be risky for emerging funds in the long run. This would instil confidence in regional investments, enabling emerging funds to unleash capital outside London.

But investment alone brings less benefits than when it is combined with business support initiatives, especially in newer, more emergent ecosystems. It is widely felt that Local Enterprise Partnerships (LEPs) across the country do not understand, and are not always responsive enough, to the needs of the tech sector. Future investment schemes should consider ways to ensure that investment and support are intrinsically linked.

Similarly the digital skills shortage is felt very acutely in the wider regions and it cannot be resolved with a ‘one size fits all’ approach. Intervention has to be targeted, and funded, to deliver for individual regions. The issue needs to be overcome by understanding what is happening at a grassroots level in terms of skills.

The next government must devise a coherent regional startup strategy that is led by a grassroots up approach, developing more networks and infrastructure to share best practice between tech clusters, to bridge the disconnect. This will ensure policy initiatives are targeted rather than mere reinventions from other geographical areas.

Nothing Ventured

Octopus has released its latest High-Growth Small Business (HGSB) Report. At The Entrepreneurs Network we're partial towards HGSBs. After all, these 77,646 businesses (at the last count), making up 2.9% of UK businesses, are vital to the UK’s prosperity.

HGSBs are companies with an annual average growth of more than 20% over a three-year period and an annual turnover of between £1 million and £20 million. They contribute £113 billion in gross value added (GVA) to the UK economy, employ 1.9 million workers, and account for 84% of net employment growth.  Find out more.

Nothing gained
This week I wrote for City AM about pensions reform. Over the years, politicians have talked a lot about Britain as a property-owning, share-owning democracy. Now it’s time to take that aspiration seriously. 

We are struggling on the property-owning front, but auto-enrollment has been a success in getting people to save. However, due to a 0.75% cap on annual charges, pension funds aren’t investing in venture capital. We lag behind the rest of the world: public pension funds contribute just 12% in the UK, in contrast to 18% in Europe, and 65% in the US.

It’s the law of unintended consequences that a seemingly sensible, minor regulation on fund charges is having such a significant impact. It’s not just investors who could benefit from a pension industry more open to venture capital: British businesses up and down the country would gain from this fresh source of capital. Read the whole article here.

Rational expectations
The Department for Business, Energy and Industrial Strategy has asked us to direct you towards an online survey. Filling it in will generate a list of things you need to do between now and the end of the year. I've tested out the survey and it seems to be rationally designed. If you have any feedback, let me know and I will pass it on to the Department. Fill in the survey here.

London calling
Calling London's most ambitious tech businesses! Today is the last day to apply for the Spring Cohort of the London & Partners Business Growth Programme.

You'll have to be running a London based technology company with three or more full-time employees and a minimum viable product. The programme is particularly focused on helping connect you to corporates. Register your interest here.

Read the whole thing here (includes news, views, and events), and sign up here.

Startup Manifesto: Improve access to Innovate UK grants

Policy 13: Improve access to Innovate UK grants

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’re sharing the policies on our blog. To read the full manifesto, click here.

The cost of making UK research funding more professionalised in the past three decades has been to make it more bureaucratic and managerial as well. 

This has meant that many innovative firms prefer not to bother with grants from Innovate UK, for example, because of the time and cost of applying and the amount of reporting necessary. The cumulative cost to all the applicants for any particular grant could be a sizeable per cent of the actual grant award: for example, 8 applicants spending 2.5% each on the application would be 25%.  

Apart from the bureaucracy involved, it is not clear that research grants are very well targeted. Inevitably, many good projects will fail the approvals process, and application reviewers end up separating not just good from bad, but good from good, a more difficult and probably less valuable task. 

There could also be clearer focus on Innovate UK’s reason for existing – the market failures, like uncaptured spillovers or collective action problems, that means that private investment may underfund innovation from society’s point of view.

To simplify and better-target grant funding, the next government should pilot a lottery-based funding system, where grant applications are reviewed to pass a certain threshold and those that do are entered into a funding lottery. The assessment could include whether there is a “market failure” case for support where for-profit VCs have decided not to, so that government funding has a clear purpose grounded in the economic case for supporting innovation.