Cummings & Goings On

The global space sector is predicted to be worth £400 billion per year by 2030 – the Government wants the UK to have a piece of the action. Writing in the Telegraph, Secretary of State for Transport Grant Shapps argues that “Britain's space industry is ready for lift-off.”

While we aren’t eyeing up space colonies just yet, Shapps has changed regulations to allow the UK to launch satellites for the first time, claiming that now our “regulations are the most flexible in the world.”

Next year the UK will have spaceports, including in Cornwall, Wales and Scotland. The technological gains could be huge, but I like the fact that one of the potential benefits intersects with one of the most mundane and seemingly intractable policy problems out there: space-based wifi would help improve internet speeds in rural areas. This would help level the playing field for rural entrepreneurs.

Shapps compares his ambitions in the final frontier with the UK’s surprisingly successful vaccination programme. While it would be easy to criticise the comparison, I think there will be a lot that we can learn from the speedy creation and rollout of vaccines.

There will also be a lot to learn from the Government’s failures in responding to Covid too. Whatever you think of Dominic Cummings, the former SpAd's testimony is worth listening to. Not just to apportion blame, but to make sure we are better prepared for something like this in the future.

Some commentators mocked Cummings when he talked of solar flares and other potential catastrophic risks. But given what we’ve gone through with Covid, this seems short-sighted.

This all matters to entrepreneurs because with a better response to Covid, we would have seen a less dramatic impact on the economy. The first port of call for politicians, advisers and anyone unconvinced, should be 80,000 Hours. They predicted the severity of the pandemic earlier than most, and have been making the case for taking risks like this seriously for years.

This is a lot more important than any political score settling.

Sharp FAANGs
It’s not our job to defend ‘Big Tech’ – our focus is on startups and scaleups that may one day usurp them. But as Sam Bowman, Adviser to network writes in the FT, new regulation on acquisitions from Google and Facebook may make life harder for British startups.

As Sam argues, empirical evidence suggests investment in start-ups is sensitive to rules on acquisitions, with one paper finding venture capital activity grows by about 40-50% in countries that enact pro-takeover laws. And another finding that US states that introduced anti-takeover laws saw a 27 per cent decline in VC investment deals compared with those that did not.

Last month, the founders of Seedrs and Crowdcube put their heads above the parapet after facing the wrath of the Competition and Markets Authority (CMA) for suggesting a merger. Separately, tech startups have got in touch with us sharing their concerns as a sale to a large tech company would have been a likely exit for them.

It’s a topic we’ll be exploring in a forthcoming report, as well as a roundtable discussion next month. Please get in touch with me if you want to find out more about either.

Commanding Officers

This week I want to turn inwards, with an update on a few opportunities to get more involved in The Entrepreneurs Network.

On Tuesday, we held our virtual AGM for the All-Party Parliamentary Group (APPG) for Entrepreneurship. I’m pleased to announce three new Officers of the group: Saqib Bhatti MBE MP, Gagan Mohindra MP and Jerome Mayhew MP.

Saqib was previously President of the Greater Birmingham Chambers of Commerce; Gagan has a great deal of experience in leadership roles in local government; and Jerome was previously managing director of Go Ape. They join our chair, Seema Malhotra MP, Lord Leigh of Hurley, Dr Lisa Cameron MP, Baroness Kramer, Lord Cromwell, Lord Bilimoria, Bim Afolami MP, and Baroness Neville-Jones. 

We have exciting plans for the APPG over the next 12 months, building the programme around a number of key themes. So far we will be running three, on Levelling Up, The Sharing Economy, and Space Entrepreneurship (which I’m particularly excited about). For each, we are running webinars/events, putting out a Call for Evidence, and then producing a briefing paper. If you want to get involved in any of these, or if you’re keen to sponsor a theme, get in touch with me.

We’ve just put out the Call for Evidence on the Levelling Up theme. Entrepreneurs can find out more here, and researchers and business groups here. You don’t need to answer every question – just wherever you have something to add. We want the final briefing paper to be purposely and mercilessly brief, so that politicians and their advisers can easily digest them.

For the Sharing Economy theme, we have our opening webinar next week. We already have an awesome lineup of MPs and entrepreneurs, but we might be able to squeeze you in if you get in touch quickly.  

APPG for Entrepreneurship: Sharing Economy
25 May 2021
10am to 11am
Complimentary
The Sharing Economy is a large and growing part of the UK economy. Join a mix of MPs, Peers, entrepreneurs and policy experts to discuss the policy issues facing it.
 

On Wednesday, we are hosting a virtual drinks roundtable with Selaine Saxby MP and some of the UK’s most ambitious hospitality entrepreneurs. If you’re an entrepreneur in the industry please get in touch, as we have a couple of places still up for grabs.
 
Entrepreneurs' Drinks – with Selaine Saxby MP
26 May 2021
6.30pm to 7.30pm
Speak with the Vice Chair of the Hospitality and Tourism APPG on how to ensure the UK is the best place in the world for hospitality entrepreneurs.

On Thursday we are hosting our next Female Founders Forum webinar on Preparing for a Crisis. Given so many businesses are still trying to bounce back from the pandemic, you could be forgiven for not wanting to think about future problems. However, I promise this won’t all be doom and gloom, and will include some practical tips from the government’s National Cyber Security Centre on a few easy things you can do to mitigate cyber risks.

Female Founders Forum: Preparing for a Crisis
27 May 2021
10am to 11am
Complimentary
Sign Up
A webinar from the Female Founders Forum about how to prepare your business for a crisis.

Finally, we are always looking to grow our network of entrepreneurs – particularly with so many new businesses starting. To that end, if you find this newsletter useful, it would be great if you could share it with people you will too. Spread the word!

Half Baked

While perhaps we should forgive US journalists for their lack of understanding of the intricacies of how the Crown and Parliament work, it’s nevertheless amusing that many thought that on Tuesday the Queen stood up in Parliament and literally dictated to Boris what he now needs to do. If the Crown had really wrest power from Parliament, I suspect there wouldn’t be much room in her speech for ending the practice of ground rents for new leasehold properties.

Not that the speech was uneventful: there were relevant policy announcements for entrepreneurs. In our response, we think there are some positive moves, but it could, and should, have gone further.

The Advanced Research and Invention Agency Bill, for example, will help meet the UK’s 2.4% of GDP commitment, but we need to incentivise the private sector too. That’s why we called on the Government to get on top of the long-overdue expansion of the scope of R&D Tax Credits – which the Government is consulting on – as soon as possible.

We also welcomed changes to make procurement more accessible for SMEs, but as we will discuss in a forthcoming paper: “Too often, large companies with dedicated public sector teams win out because they are better able to navigate the labyrinthine bidding rules. But complexity isn’t the only issue. For small businesses, every activity has a major opportunity cost. Most SMEs cannot devote dedicated resources to scouring multiple outlets in search of public procurement opportunities, so it’s vital that bids are advertised in a timely manner on a single platform.”

One of the most under-investigated areas of entrepreneurship policy is the impact of planning policy on businesses (something we’re planning to correct). Again, we were cautiously optimistic about the potential of the new Planning Bill to build more homes where people want to live and work. As was Policy Exchange’s Ben Southwood, although our Adviser Sam Bowman is a lot less sanguine.

Our response expresses concern about the unintended consequences of the online harms announcements, and while it didn’t feature in our immediate response, the total ban on online advertising for products high in fat, salt and sugar (HFSS) by the end of 2022 may also be too blunt a policy tool to deal with a complex issue.

For context, on Thursday I gave out an award to the founder of Ma Baker, a micro bakery, for winning the Heart of Gold category in the Small Awards. However, businesses like this could be severely damaged, as No10 is unsure whether bakeries will be allowed an Instagram account. The Government’s own evidence shows that an online ad ban will cut children’s calorie intake by just 2.84 calories per child, per day. I’m sure this will be raised by some entrepreneurs on our upcoming virtual drinks event with Selaine Saxby MP, Vice Chair of the Hospitality and Tourism APPG.

Clearly promoting innovation is now high up the Government’s agenda – the challenge will be to do so without killing it with a thousand new regulations.

Spin country
This week I learned about Spinout.fyi via Nicolas Colin – a noble effort to crowdsource and openly publish spinout deal terms across every university. It’s like Glassdoor and Levels.fyi, aiming to shed light on deal terms to catalyse a rewrite of the spinout playbook in favour of future founders. They have a short survey for anyone with experience in spinning out companies. Along these lines, we will release a report on policies to support spinouts later in the year, so please get in touch with Sam Dumitriu if you want to share your ideas with him.

It's easy being
Building on the success of our Green Entrepreneurship report, we’re in the process of planning a Green Entrepreneurship Forum (a little like our Female Founders Forum). I’ll share more details in due course, but we are currently on the hunt for planet-saving entrepreneurs to contribute to the project. If that’s you or someone you know – get in touch with Katrina Sale.

On the Green Entrepreneurship front, the UK Government and PUBLIC have launched Tech For Our Planet this week. They are inviting innovators to pilot and showcase digital solutions to some of the most pressing climate issues, so check them out.

The government must commit to a pro-growth agenda, says The Entrepreneurs Network think tank

Policies outlined in the Queen’s Speech show that the government is pursuing a pro-growth agenda to aid the recovery after the pandemic but there are a number of measures which do not go far enough or may impede the good work elsewhere.

On the ARIA Bill and R&D Funding, Sam Dumitriu, Research Director at The Entrepreneurs Network, says:

More cash for R&D is key to helping the UK’s startup sector continue to grow and new models of funding such as ARIA are worth trying. But to meet the UK’s 2.4% of GDP commitment, private sector R&D spending needs to increase too. The government cannot afford to delay long-overdue reforms to R&D Tax Credits. It needs to be simpler for startups and cover all the inputs in the 21st century R&D process, such as data and cloud computing. 

On the new measures to change subsidy rules post-Brexit, Sam Dumitriu, Research Director at The Entrepreneurs Network, says:

New businesses are the number one driver of job growth, which explains why there are so many different schemes and tax breaks designed to support them. Outside the EU, there are opportunities for simplification making it easier for businesses to access private capital. It is clear why the government is keen to increase subsidies to areas of strategic interest and left-behind areas but they must be careful about what they do with this new-found freedom. We must not use it to burn tax-payer money to favour well-connected winners and subsidise businesses which would have never been profitable independently.

On the changes to make procurement more accessible for SMEs, Sam Dumitriu, Research Director at The Entrepreneurs Network, says:

It is welcome that the Government is trying to simplify the procurement process for SMEs. Too often, large companies with dedicated public sector teams win out because they are better able to navigate the labyrinthine bidding rules. But complexity isn’t the only issue. For small businesses, every activity has a major opportunity cost. Most SMEs cannot devote dedicated resources to scouring multiple outlets in search of public procurement opportunities, so it’s vital that bids are advertised in a timely manner on a single platform. 

On the potential changes to the planning system, Aria Babu, Senior Researcher at The Entrepreneurs Network, says:

High housing and office costs are among the biggest challenges facing the UK. Start ups have their costs driven up by office rents and they struggle to hire the brightest and most creative people because of the cost of living in the most dynamic and innovative places. Estimates for how much growth we are missing out on by allowing these problems to continue go as high as 30% of GDP. A more liberal planning system is necessary if we want the UK cities to remain hives of entrepreneurial dynamism. We have not seen the text of the new Planning Bill but anything that falls short of fixing the underlying issues will not go far enough.

On the measures to make the internet safer, Sam Dumitriu, Research Director at The Entrepreneurs Network, says:

Measures to tackle online harms need to be carefully designed. Everyone wants a safe and secure internet, but there’s a risk that ill-thought-out rules and regulations will crush competition. Startups with the power to disrupt the tech giants can’t afford to employ armies of moderators and lawyers. Well-intentioned policy could end up entrenching monopolies. This wouldn’t be the first incident. When the EU passed GDPR, the share of advertising spend going through Google and Facebook actually increased. 

Sam Dumitriu, Research Director at The Entrepreneurs Network says: 

“By increasing R&D funding through ARIA, pledging to install 5G and gigabit broadband, and planning reform it is clear that the government is keen to pursue growth to recover from the pandemic. However, there are some places where competing agendas may damage these good intentions. Changes to subsidy rules post-Brexit could result in the government wasting money propping up unviable but politically popular businesses.”

-ENDS-

Notes:

For further comments or to arrange an interview, please contact:

Aria Babu

aria@tenentrepreneurs.org / 07834549299

The Entrepreneurs Network is a think tank for the ambitious owners of Britain’s fastest growing businesses and aspirational entrepreneurs.

Cool Intentions

The evidence is mounting that the pandemic has spurred more people in the UK to want to become an entrepreneur, with the latest Global Entrepreneurship Monitor (GEM) report finding that the crisis has played a significant role in getting more people to think about starting a business.

The GEM report is probably the best resource for comparing entrepreneurship between countries. This year it reports that: “The United Kingdom was one of the few European economies to increase its entrepreneurial intentions rate, which is adults expecting to create a new business in the next three years, up from 7.6% in 2019 to 8.2% in 2020. Of those adults intending to start a new business, 80% indicated that this decision was influenced by the pandemic to some extent.” This represents the highest figure among European countries, and the same rate as the United States, which "suggests a level of adaptability to the pandemic that is rare among peer economies,” write the authors. When it comes to measures of entrepreneurial intentions, being more similar to the US and less like Europe is generally a good thing.

The pandemic has dented ambitions though. Only 1.3% of UK adults plan to hire six or more employees over the next five years, compared to 2.6% in 2019. And 4.2% plan on hiring no employees at all.

The report offers more notes of optimism, however, with the UK improving on a number of metrics between 2019 and 2020. Experts found improvements in: access to entrepreneurial finance; research and development transfers; commercial and professional infrastructure; government policy; and government entrepreneurship programs. And while the Government’s response to pandemic was only ranked 20th among GEM economies, on the entrepreneurial response to the pandemic the UK came fifth.

While the pandemic isn’t quite over, entrepreneurs and those supporting them should take a moment to pat themselves on the back. Then we must strive to support this new cohort of wannabe entrepreneurs realise their entrepreneurial intentions.

Really really want
We spend a lot of time talking to politicians and civil servants about policies to support entrepreneurship. We also spend a lot of time chatting to people like us who lobby the government on behalf of businesses of all sizes. In normal times we even have a group that meets for a drink to discuss this stuff after work. Alongside the research, consultation responses and media work, I think it’s fair to say we have a decent impact on entrepreneurship policy in the UK.

As the team has grown, and we’ve increased the number of Advisers, we’ve expanded our expertise. Collectively we know a lot about a decent number of things – or at least know an expert or entrepreneur who does. But there are still gaps in our knowledge.

I want us to get better at crowdsourcing your ideas, to take them to government. One way I’ll try to do that is asking for more policy ideas in this newsletter. To that end, on Wednesday we have a webinar with Paul Scully, the Small Business Minister. While there will be opportunities to ask questions on the day via Slido, it would also be great to get your questions in advance.

I can’t promise to ask them all, but I will read every suggestion and I’ll forward them onto our research team, which will help inform our work. The minister will be joined by Chris Hulatt, co-founder of Octopus, and both will be talking about ‘how to build a nation of entrepreneurs’. So what do you want the government to do differently?

Nothing Ventured

Getting more UK pension funds to invest in venture capital has proven far from straightforward, with both sides having noble, but different goals.

On one side, the pension fund industry wants to keep the cost of pension funds down. That is why we have a 0.75% fee cap (in practice averages are 0.46%). On the other side, the venture capital industry looks to the US, where pension funds contribute almost two-thirds of the capital in the much larger VC market (it’s just 12% in the UK), supporting the growth of the world’s most innovative companies. Sadly, the VC model two and twenty fee structure doesn't fit with the cap.

As Sam Dumitriu writes on our blog, the Government is looking to loosen the 0.75% ceiling on annual management fees for workers auto-enrolled into workplace pensions. It is something we have both argued for before. For example, in City AM I called for the cap to be scrapped: “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 would 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.”

That said, I suggest reading the Pensions and Lifetime Savings Association’s submission to the Chancellor’s consultation on why they worry about getting rid of the cap.

In reality, compromise is probably the only way forward. Nest, who manages autoenrollment pensions, intends to allocate 5% of its funds to private equity. However, Mark Fawcett, Nest’s chief investment officer, believes that private equity will accept a deal where they pay lower fees in return for a large guaranteed stream of capital, saying “we won’t pay two and 20.”

Let’s hope for the sake of entrepreneurs that the two industries can meet somewhere in the middle. As Sam argues: “Soon, there will be £1tn worth of assets under management in defined contribution (DC) pensions. If just 3% of that was allocated to venture capital then that would be £30bn. This would have a transformative impact on the UK’s startup ecosystem.”

Sharing’s caring
We’re going to launch a new theme as part of the APPG for Entrepreneurship on ‘The Sharing Economy’.

We’re aiming to host the first roundtable next month, so please get in touch if you’re an entrepreneur, politician, academic, policy wonk etc with an interest in this policy area. As with all our APPG themes, this will include a virtual roundtable, call for evidence, briefing paper, then roundtable launch.

Next month we’ll be hosting the AGM. It will be a chance for interested MPs and Peers to become Officers of the group. Any MPs or Peers who want to get involved should get in touch with Katrina to find out more. Also, feel free to pass this on to any MPs and Peers you think should get involved.

Spooking you
The National Cyber Security Centre (NCSC) has asked us to share their resources with you. The NCSC is a government organisation that provides advice and support for the public and private sector in how to avoid computer security threats. It was set up in 2016 with the aim of making the UK the safest place to live and work online.

Cyber security is a policy area we’ve yet to really get our teeth into, but I remember coming away from one our Mishcon de Reya Leap breakfasts a few years ago in shock at the scope of the threat. It was led by one of the founders of Darktrace, whose successful IPO today is perhaps also testament to the challenge all entrepreneurs face.

Government is well aware of the threat (hence the NCSC) – new cyber security laws, for example, will ban insecure default passwords.

The NCSC has some great resources. For starters, check out their Cyber Essentials, create a Cyber Action Plan and sign up for their newsletter.

Sign up to future newsletters here.

Education Entrepreneurship Monthly – April 2021

Higher education. An open letter from Universities UK and others at the beginning of the month prompted the government to confirm 17th May as the date students could return to campus (i.e. not until the beginning of the next stage of lockdown easing). This came after the sector had already expressed considerable frustration about a lack of necessary support 

Many want to know why this is the case, when nurseries, schools and FE have all already returned to face-to-face teaching? And why was this decision taken despite the mounting survey evidence of the negative impacts of the off-campus/remote experience for learning, social life, wellness and readiness for graduate employment?

Students, it appears, have largely given up hope of getting any more face-to-face teaching this academic year according to the fourth and latest HEPI and YouthSight survey of how students are coping with pandemic conditions.

In March, the ONS Student Insight Survey had already indicated that as many as two-thirds of students may have experienced a decline in their mental health this academic year as social distancing, isolation measures and shut-outs have continued to plague a return to anything like normal campus life. 

Taking stock. In FE, a report from the Association of Colleges (AoC), based on a survey of 80 college responses, was published. All respondents suggested negative impacts for learning, while 75% indicated that their 16–18-year-olds were between one and four months behind compared with a normal academic year. Drawing on the survey’s findings, the Association called for a £1.5bn package of support to fund up to an extra year of study for those due to leave this year, and funded extra hours and support for those already in or about to join. 

To put this in perspective, the government’s current spending plans for catch-up across the board–from early years, through schools and up–hover at around £1.7bn - while the true need, according to the Education Policy Institute (EPI), is likely to be more in region of £10-£15bn. The level of shortfall means many of those young people who need catch-up/remedial provision the most will miss out, if not on access to support, then on quality. For private and third sector providers and responding entrepreneurs, the future is B2C.

Youth job market. The full impact of coronavirus and lockdown on young people has been masked by still-rising participation rates. This is a trend that the general decrease in youth employment opportunities during the pandemic will only have added to. The Institute for Employment Studies (IES) reports that the numbers of young people on payroll have fallen by 12.0% since the start of the crisis a year ago, while the fall for all other age groups has been just 1.4%. Its report also highlights that the numbers point to significant increases in long-term youth unemployment (defined as those unemployed for more than six months), which is now at its highest level in five years.

The government’s response has focused first on the introduction of incentives (enumerated in the last issue) to help stimulate demand for apprenticeships and traineeships, and second, post-18, on the Lifetime Skills Guarantee, which got underway this month. From next year, free access will be given to some 400 qualifications and skills bootcamps for eligible adults without a Level 3, funded through the National Skills Fund. 

News and Views

UK-based Guide Education raises £6 million for tech-based approach to teacher training (Finsmes)

UK Edtech Mindstone ‘compound learning’ tool achieves $2.2 million raise with Moonfire Ventures (Tech.eu)

La Salle Education, an online learning and assessment platform, completes £1m funding round for new Digital Tutor product (Ed Tranham)

Graduway named EdTech Company of the Year 2020 by CIOReview (Cision PR Newswire)

Angel investment in Scotland back to end-2019 level (DailyBusiness)

Will Zoom Apps be the next hot start-up platform? (TechCrunch)

The Creator Economy Boom: What it is, what’s driving it, and where it’s going? (Ollie Forsyth, Global Community Manager, Antler)

How are VCs handling diligence in a world where deals open and close in days, not months? (TechCrunch)

Fundraising: How long does it take to raise capital for a start-up? (BNN Times)

Startup 101: Knowing When You’re Ready For Venture Capital (Forbes)

Which founder would you rather be? (David Franel, Partner, Founder Collective)

Should workplace pensions fund entrepreneurs?

In the US, pension funds contribute almost two-thirds (65%) of the capital in the VC market. By contrast, they provide just 12% of the funding in the UK VC market. Soon, there will be £1tn worth of assets under management in defined contribution (DC) pensions, if just 3% of that was allocated to venture capital then that would be £30bn. This would have a transformative impact on the UK’s startup ecosystem.

It is understandable then that the Government is, and has been for a while, keen to understand why British pension funds invest less in venture capital than their US counterparts and to change it. 

One key barrier is the 0.75% cap on fees for workplace pensions. In my report Unlocking Growth, I noted that this poses problems for the traditional VC model.

“Venture Capital funds typically charge a 2% management fee and take a 20% share of the uplift when the fund closes. Unlike traditional investments in stock markets, VCs invest smaller amounts and take a hands-on approach.”

A higher cap would help solve this problem. Alternatively, regulators could treat carry (the 20%) differently to other performance changes.

At the Budget, Rishi Sunak announced a consultation on changes to the cap on pension charges. While it seem highly unlikely that the cap will be raised altogether (the DWP ruled this out in January) a range of options are on the table according to the FTAdviser:

“One such measure would allow schemes to “smooth the incurrence” of performance fees, which are often payable on illiquid investments, over five years. 

The use of a “rolling average” would allow schemes to exceed the 0.75 per cent charge cap occasionally through good performance without being penalised.”

For instance, a VC fund that saw three or four of its investments exit through lucrative IPOs in a single year might see fees spike and exceed the cap. A rolling average would make this less likely. However, it still might be insufficient as the FT notes: 

“But this might not solve the issue of performance fees for private equity, which tend to be lumpy and concentrated in the years when portfolio company investments are harvested.”

However, not everyone is in favour of a greater share of pension investment going to private equity. The Pensions and Life Savings Association downplayed the idea, arguing that a 5% allocation to VC would effectively double the costs of a typical pension portfolio.

It’s right to try to limit pension fees and protect savers, but having some exposure to VC is in the interests of most savers.

An Oliver Wyman analysis commissioned by the British Business Bank found “the asset class has delivered an average return net of fees of 7% points a year higher than that seen in public equity markets.” There’s also a diversification argument. VC exposes people to sectors that are underrepresented in public markets. As the investments have only a weak correlation to listed equities, it has the benefit of reducing volatility.

That’s why it was welcome to read that Nest, who manage autoenrollment pensions, intends to allocate 5% of its funds to private equity. They believe that private equity will accept a deal where they pay lower fees in return for a large guaranteed stream of capital.

The challenge, as noted in the British Business Bank report, will be creating new vehicles that spread risks across multiple funds. But the prize for savers and the UK economy as a whole from a step-change in VC investment is too large to pass up.

Female Founders Forum webinar - Trade: Accessing New Markets

How can female entrepreneurs break into international markets? Last Wednesday,the Female Founders Forum hosted a webinar on exporting. We had a very informative discussion, led by a panel of experts including Juliet Rogan, head of high growth and entrepreneurs at Barclays, and two entrepreneurs, Cécile Reinaud and Virginie Charles-Dear, the founders of Séraphine and toucanBox.

They had some helpful advice for the guests who tuned in. Here are their top tips.

Go for low hanging fruit

You should identify the markets which are going to be the easiest to enter. Séraphine makes maternity clothing, and founder Cécile Reinaud told us that they first targeted countries where the maternity fashion market was underdeveloped. She thinks you should only export to places where you know that you have some kind of competitive advantage over existing players. The costs for a foreign business will be higher so it would be difficult for a “me too” product to succeed.

Look at the regulation

toucanBox ships toys, which are tightly regulated. Their founder Virginie Charles-Dear explained that  you have a product which is highly regulated, it helps to export to places with similar rules so that each additional market does not add too many onerous approvals or slight adjustments to the product.

Network with entrepreneurs who are doing the same thing

Cécile said she gained the confidence to enter new markets by talking to other entrepreneurs who had gone before her. She found that they could tell her what the specific hurdles for that country and that sector were. She has also received advice about which software to use and where to find a good tax adviser, which proved very helpful.

Ask for help from professionals

Juliet Rogan advised female founders to actively seek advice. Female founders are more likely to seek advice from people within their network, whereas male entrepreneurs are more likely to ask for advice from professionals. Women should continue to seek out networks of other entrepreneurs, but it is worth female entrepreneurs making an extra effort to find professionals too; like lawyers, accountants, or even specialist trade advisers.

Reach out to UK Trade and Investment for support

The Gov.uk website offers a lot of resources to British entrepreneurs who are interested in exporting. Beyond information about how exporting to different countries works, they will also offer some grants to entrepreneurs. Cécile says they helped her to export to Japan and the UAE, and gave her grants to travel to the countries first.

Know and understand the market

Understanding consumers in new markets is vital. In the early days for toucanBox, Virginie stood outside schools and asked parents and pupils to test out her products. She believes that when you export you should make sure to hire people who know the local market because you can learn a lot of unexpected things.

Make a financial plan

Cécile cautions that there are some markets which are difficult to break into. She said that marketing costs in the US are very high, and that in her sector, maternity fashion, there was already a very competitive market. She said they only launched Séraphine in the US when they were financially secure enough to sustain a loss making business for several years.

Do not wait for everything to be ready

Virginie says that you should be wary of over-preparing. There is no point in waiting for the perfect moment to export because it doesn’t exist.

It was a fruitful conversation with a lot of actionable advice. If you would like to be invited to future Female Founders Forum events please sign up on our website.

David and Goliath

Lobbying is a dirty word. The unfolding story of former Prime Minister David Cameron’s Greensill shenanigans will serve to further muddy the practice.

But lobbying, in the broadest sense of the word, is a necessary part of a representative democracy. Politicians can’t know all of the ways that the laws of the land are impacting the country, so it’s an important part of civil society that individuals and groups are able to petition the government when things need changing. Banning lobbying isn’t really an option.

Lobbying is particularly important for the most innovative entrepreneurs, as there are plenty of regulations that aren’t fit for purpose or else become out of date when new technology is created. In an excellent article for Sifted (which inspired me to write about this topic), friend of the network Nicholas Colin mentions the 1835 Highways Act, which effectively prohibits anyone in the UK from riding an electric scooter on the road. Every entrepreneur, in every sector, has their own examples of changes that would support their business.

However – and it’s a big “however” – not all lobbying is good. Beyond the flagrantly bad examples of businesses trying to circumvent what should be open tenders, sometimes business leaders will call for more regulation of their sector as a strategy to stifle smaller competitors and increase the barriers to entry to deter new entrants.

Sector-specific lobby groups might be pushing for what’s best for their sector – say, manufacturing or tech – but their desired policies can come at the expense of other sectors and ultimately make taxpayers and consumers worse off.

Even sector agnostic business groups aren’t always acting in the public interest, as their job is to represent their members, not necessarily the best ideas. Lobbying for the special treatment or exemption for certain types or sizes of business often distorts the market and perverts competition-friendly incentives, once again making consumers worse off.

So while lobbying is necessary, it’s lopsided. And despite what you hear, the main issue isn’t between small and big businesses, but between large established cohorts and newer challengers. While large and small businesses have well established and effective lobby groups, innovative startups and scaleups still don’t get the same level of support. Their voice is important because their businesses have the greatest potential to scale and create wealth and jobs. And as they are trying to disrupt incumbent industries, they are also often the businesses pushing up hardest against existing regulations backed by organised lobbies.

While there is a strong case to be made for more business-friendly policies across the board, startups and scaleups need particular attention. As a think tank, we and other organisations have a role to play in this (I’ll share more details about how we will do this at an event with UKBAA next week), but politicians can help by working harder to seek out these innovative businesses, which still lack the institutions and resources to get their voices heard in parliament.

Dynamic systems
On the blog, Sam Dumitriu asks the question: Is declining business dynamism to blame for our productivity woes? Business dynamism relates to measures of birth, growth and decline of businesses and drawing on a recent presentation from Professor Mark Hart from the Enterprise Research Centre, Sam makes the case for why we should pay more attention to it.

I highly recommend reading it in full. And if you like the idea and would like to get involved in supporting a paper on this topic, please feel free to get in touch.

GB News
Rhys Gunter, a Senior Producer at GB News, has reached out to see if any entrepreneurs are open to being guests on the TV channel when it launches later in the year. If you would be keen to be added to their database to talk about business, startups, tech, tax, education – whatever your passions are. Just drop an email to Rhys with a little about you, your business and what you would like to talk about (include your phone number).

Sign up for the Friday Newsletter here.

Open for Business

The next few months promise to be an exciting time for businesses. Today, with lockdown easing, town centres are full of people hoping to revisit their old haunts. Queues have appeared up and down the country outside shops, hairdressers and beauty salons have run out of appointments, and if you haven't already booked you're going to struggle to find a spare table in a pub tonight. After a few months of being kept away, it seems that shoppers are keen to spend again. The past few weeks have seen a surge in hiring, as businesses (accurately) predicted this bounce back in demand.

Frances Bishop is the founder of a children's clothing shop, The Pud Store. Because of the pandemic, she had to restructure aspects of her business, and started trading online but she says that now things are open again, her customers are excited to “get back to some sort of normality – just to come and see the clothes."

As we identified in our Resilience and Recovery report, female-founded firms across the UK have been most impacted by lockdown. However, with retail and hospitality being disproportionately female-led sectors, and the UK's vaccine programme continuing to storm ahead, reopening presents significant opportunities for female entrepreneurs. We expect that they will be more than able to rise to the challenge.

Webinars & Programmes
Join us for our webinar on Wednesday.

Speakers: Juliet Rogan, Head of High Growth and Entrepreneurs at Barclays; Cécile Reinaud, Founder of Seraphine; and Virginie Charles-Dear, Founder of ToucanBox
Join us for our webinar on Wednesday
Free
10am to 11.30am
14 April 2021

Female Founders Forum – Trade: Accessing New  Markets
 

Juliet Rogan is Head of the High Growth & Entrepreneurs team at Barclays. She leads a national team of High Growth Relationship Directors focused on supporting companies to scale up.

Cecile Reinaud is the founder of Seraphine, an international maternity and fashion label. She grew Seraphine from nothing to a £50m company which she sold in 2020. She supports the Cherie Blair Foundation for Women and wants to use her experience to help many other women found and scale their businesses.

Virginie Charles-Dear is the founder of ToucanBox. It provides a subscription service which delivers a monthly package of activities for children and toddlers. They ship over 150 000 boxes every month, to people in the UK, Europe, and the US.

Female Founder Highlights
Here’s a quick round-up of the news:

• Announced on International Women’s Day, the government is giving £50,000 grants to 40 female innovators. The grants have been given to women who have started businesses with extra social benefits. Recipient companies include an app to help victims of domestic abuse access emergency services and an ocean plastic recycling company.

• Congratulations are due to another Female Founders Forum member Tugce Bulut. She, and the rest of her team at StreetBees have raised another £5m.

• Further congratulations are in order for Faye Holland, another member of the Female Founders Forum whose company cofinitive has been named the best PR and Communications agency in East Anglia.

• Huckletree runs regular "VC office hours" for female founders. Last year an entrepreneur raised £400K from one of these meetings, so it is well worth your while. This quarter they are partnering with SeedCamp. You can apply for a 30 minute slot here. 

Government Support

• HMRC has launched a series of live webinars covering customs arrangements on shipping goods between the EU and the United Kingdom. If you’re still getting to grips with the new arrangements you can sign up to a webinar here.

• Even though the end of the pandemic is in sight, you may still be eligible for business support from the government. Here is a quick test to find out what financial support you can receive.

• If you are going to be reopening physical locations soon, here is some advice on how to make your workplace more COVID-secure. The information is broken down for different businesses, with advice tailored to labs, retail, and even other people’s homes.

• The government has updated their new post-Brexit visa system and our adviser Zenia Chopra details how the different types of visa work.

• One of the most exciting announcements in the budget was the super-deduction, which will allow businesses to deduct 130% of investments from their taxable income. Our Research Director has written about all of the changes to corporation tax in a policy update here, and also about the super deduction in more detail here.

• Help to Grow is a new scheme from the government for SMEs, which, as the name suggests, is aimed at helping businesses grow. There are two streams, one for improving management and one for improving digital tools. The management programme is a 12-week programme delivered by business schools, which at a 90% subsidy, only costs £750. The digital programme delivers free software advice to participating businesses, as well as vouchers for technology which can help boost your business’s productivity. You can learn more about them here.

Barclays Support and Opportunities

Barclays Women in Business Hub
Barclays is dedicated to levelling the playing field for female-led businesses so that more female founders start up and run businesses across the UK. We are a founding signatory of the HM Treasury Investing in Women Code, a commitment from the financial services industry which was launched in 2019 to improve female entrepreneurs’ access to tools, resources and finance. You can read more about Barclays’ three-year commitments to provide ongoing and meaningful support for female entrepreneurs plus helpful tools, guides, checklists and the wider support that is available for female-led businesses on the Barclays Women in Business hub here.

Barclays Money Management Hub
With many customers facing turbulent times, and so many coming to the end of loan repayment holidays, Barclays has created a dedicated Money Management Hub to help businesses keep their finances healthy. It’s continually evolving with lots of useful tips to help businesses budget and plan cashflow, as well as articles and guidance to help consider challenges businesses may be facing. 

Barclays Marketplace
If you need to find new partners to help your business with payment services, pensions, insurance and funding for growth, visit Barclays Marketplace whose featured partners have a track record of delivering quality services in their field.

Eagle Labs Virtual Events
Barclays’ programme of virtual events covers a range of topics from cashflow management to building resilience to help entrepreneurs and start-ups navigate these uncertain times. Forthcoming events include a session on thinking differently about social media marketing and an event to demystify AI, machine learning, and machine intelligence. All events are free to attend and open to anyone. For more information visit the Eagle Lab event page.

Barclays COVID-19 Support Hub
The Barclays COVID-19 Support Hub provides the latest information, tools, and guidance to support businesses throughout the COVID-19 pandemic. This hub includes information about Barclays’ products, webinars, Facebook Live events, and more information on how to access government schemes.

Is declining dynamism to blame for our productivity woes?

Over the past decade, we have seen a historic slowdown in productivity growth. While there is some cause for optimism based on the rapid adoption of tech during the pandemic, boosting productivity should still be the top priority for any government. After all, more than anything else, it is what determines wages and living standards.

Over the past five years, policymakers have tended to focus on the UK’s long tail of underperforming SMEs as the main route to improving productivity. It’s not a bad idea per se, if we could close the productivity gap between our top performing firms and the rest then it’d boost UK GDP by £270bn and bring us closer to German and American levels of productivity. This is why a range of policies, including the recently announced Help to Grow scheme for SMEs, are focused on supporting more SMEs to adopt best practices in digital adoption and management. 

Yet, while our long tail may help to explain why we are less productive than Germany or the US, it doesn’t explain why productivity growth has slowed down across the West or why the slowdown has been sharpest in the UK.

At a recent meeting of the APPG for Entrepreneurship, Prof Mark Hart from the Enterprise Research Centre challenged the long tail narrative. He pointed out that since the financial crisis it’s been the long tail that’s added the most productivity growth, while the most successful firms have seen labour productivity fall or stagnate.

Part of the explanation is that the top 25% of the productivity distribution were more resilient and as a result were able to retain staff even when turnover was falling. The result was a fall in real wages and productivity. He made the provocative point that an exit of some of the UK’s most productive businesses might actually create the space for worse performers to improve their productivity.

There’s precedent for this. Creative destruction is a key driver of productivity. As economist Magnus Henrekson writes:

“Economic growth is not primarily about firms growing by a similar percentage or productivity rising in existing jobs because of technological change and more capital per worker. Rather, it comes mainly from churning (firm and job turnover) and restructuring— mostly shifts in production from less to more successful firms within narrowly defined industries, rather than from declining to growing sectors.”

Higher rates of job reallocation – that is the sum of employment changes from businesses starting up, closing down, expanding or contracting – are associated with higher rates of economic growth. The same is true for rates of worker reallocation, people moving from job to job. In other words, business dynamism is what drives growth.

A decline in job and worker reallocation may explain why productivity has stagnated in recent years. At the APPG meeting, Prof Mark Hart noted that the UK has not seen a US-style decline in job reallocation. Job reallocation rates in the UK have been essentially flat, though consistently lower than US rates.

It may be difficult then to blame job reallocation rates for the UK’s decline. However, there is still some evidence that business dynamism has got worse in the UK. Research from Nesta found that the allocative efficiency of the UK economy fell significantly between 1998 and 2007. In other words, we became worse at allocating resources i.e. workers and capital to our best businesses. The Nesta paper concluded: 

“If Britain’s productive resources were as efficiently allocated at the end of the period as they had been at the beginning, productivity would have been 7.6 percentage points higher among firms of this size. This is equivalent to around £79 billion of lost GDP.”

It is possible that job reallocation might have concealed the decline in dynamism. There might be a case for focusing on worker reallocation, people moving from job-to-job instead. A recent paper from Census Bureau economist Henry Hyatt highlights a worrying trend. Job-to-job flows in the US have fallen dramatically since 2000. This is interesting because while job reallocation fell consistently between 1980 and present, the decline only became linked to a fall in productivity post-2000. 

There are a few reasons to look at job-to-job moves specifically. Workers typically move to jobs that pay better and last longer. It is part of an efficiency-enhancing process where productive employers expand and unproductive employers cut jobs.

While the job reallocation rate has remained roughly stable in the UK, job-to-job flows do appear to have fallen.

Data from the Labour Force Survey shows that seasonally-adjusted job-to-job flows have not reached their pre-Financial Crisis level.

The above data only goes back to 2004. Earlier, slightly different data, cited by the Bank of England shows the decline began in 2001. Interestingly, this data seems to mirror the decline in allocative efficiency that the Nesta paper points to.

In Hyatt’s paper, he points to a range of explanations for the US decline, including:

• An ageing workforce: older workers move from job-to-job less.

• A decline in startup rates: startups have more job turnover.

• Increasing concentration: large firms have less job turnover.

• Higher levels of education: educated workers are less likely to change jobs.

His data suggests the first two factors are the most significant (explaining 9-21% and 8% of the decline respectively). But it’s clearly not the full story.

One factor he doesn’t mention is the high cost of housing in our most productive places. Could a decline in geographic mobility, documented in the UK by the Resolution Foundation and in the US by the Mercatus Center, be to blame?

The Resolution Foundation notes that although the population has grown by 11% since the millennium, the number of workers moving across the UK to new jobs has stayed the same. This is a 25% drop (0.8% to 0.6%) in the share of the population moving. Their data also reveals that the decline has been starkest among young graduates:

“whereas graduates under the age of 35 were almost 5.7 times more likely to move region and employer than non-graduates in the 1990s they are now just 3 times as likely.”

This decline in geographic labour mobility may have an outsized effect on productivity compared to other job to job flows. 

“People who change job consistently benefit from pay rises 5.5 times as large as people who remain in the same job, and those that move region and employer see typical pay rises 6 times as large.”

The issue could be that moving to a high productivity region such as London may improve your pay, but in real terms you could be worse off. This point is starkly made in a recent Economist article on what the author describes as Barratt Britain.

“In Cramlington, Richard, who works in sales, earns around £28,000 a year and his partner, a part-time administrative assistant, earns £12,000. That is enough for a four-bed house and two cars. “If I’d moved to London and got a graduate job, I’d probably be renting a shitty flat and I doubt I’d have two kids,” he says.

In other words, higher productivity work and high wages no longer always translates to higher living standards.

The Duke

One of Prince Philip’s greatest achievements and legacies will be The Duke of Edinburgh's Award.

At the request of Kurt Hahn, his educational mentor, HRH The Duke of Edinburgh first considered the idea of a national programme to support young people’s development in the autumn of 1954.

According to the DofE website: “His Royal Highness wanted to bridge the gap between leaving formal education at 15 and entering into National Service at 18, so that young men made the best use of their free time, found interests and acquired self-confidence and a sense of purpose that would support them into their future and help them to become well-rounded citizens.”

More than 4 million teenagers have participated in the scheme and over 140 countries and territories now offer DofE programmes. Just in the UK, last year 295,490 young people started a programme and a record 159,051 Awards were achieved.

While it’s very broad, the DofE Award is the sort of upstream intervention that we think will raise the confidence of young people so later in life they will have the confidence and broad skills to consider entrepreneurship. It’s a long-term investment, but one worth making.

My colleague Sam Dumitriu covers some of the more enterprise focused upstream interventions in the latest APPG for Entrepreneurs digest, which points people in the direction of the work of The Prince’s Trust’s Enterprise Challenge, which was founded by Prince Charles, and our friends at Ultra Education. Sam also cites some other great international examples in his report on Educating Future Founders, such as Teach a Man to Fish’s School Enterprise Challenge, ABE’s KidsMBA, and VIVITA. 

(As an aside, when writing his history of the RSA, our Head of Innovation Research interviewed Prince Philip. Here’s Anton’s great Twitter thread on what he learned about Prince Philip’s commitment to environmentalism and the convening power he was able to wield.)

Calling all Female Founders
The Female Founders Forum is back. Well, it never really went away, but we have now cemented our plans for the next 12 months. 

In partnership with Barclays, it’s going to be bigger and better than ever, and it kicks off on Wednesday for the first of four webinars. This one is focused on helping support your exporting ambitions and includes Cecile Reinaud, the founder of Seraphine, who recently sold her fashion label for £50m, and Virginie Charles-Dear, founder of ToucanBox, which ships over 150,000 packages of activities for children and toddlers every month to the UK, Europe, and the US. RSVP here.

Later in the year, we will host regional roundtables across the country, and we will release our annual data-backed policy report (check out previous reports here).

It would be great to see you on Wednesday (literally, I hope, as there will be time afterwards for virtual networking), and please forward this onto any female founders who you think would be interested in getting involved in our work. You can sign up to our quarterly Female Founder Forum focused newsletter here.

At Fives and Fours

The think tank Autonomy predicts that more than one million companies in Britain could move to a four-day working week after the pandemic.

Certainly, the pandemic has revealed all sorts of new ways of working that will remain in place when things go back to 'normal'. For example, Dr Matt Clancy argued, in a report for us on The Case for Remote Work, that even when it’s safe for us to all return to the office, a lot more work will be undertaken remotely than before the pandemic. There are policy implications for this. And not Deutsche Bank Research’s ludicrous suggestion of a 5% tax on those who work from home – but things like supporting better digital infrastructure.

Similarly, many of us are desperate to get off back-to-back video calls, but the idea that things will just snap back to pre-pandemic meetings is fanciful.

The same may be the case for more flexible working weeks. Employers and employees may have discovered by being forced to reduce days because of the economic hit of the pandemic that both have a preference for working less in future.

However, the thing about Autonomy is they aren’t just spotting a trend and then asking the government to think about the policy implications. They’re campaigning for a universal four-day working week – both directly and through the 4 Day Week Campaign.

We should always be wary when an organisation suggests a single policy change has the potential to solve all society's ills – even when it’s something you agree with (in fact, especially so). The 4 Day Week Campaign is a bit like that – promising all manner of benefits for our economy, society and environment. It even promises to help restore our democracy.

There is some evidence that 4-day work weeks can make some of us more productive, but the weight of evidence is far from overwhelming – and importantly isn’t satisfactorily broken down across industries and age groups.

A universal policy of a reduced working week runs against the rise and rise of entrepreneurship. Entrepreneurs and their founding teams readily spend closer to 7 days a week than 4 days a week when building their businesses. Of course, as they grow most of the workforce will expect less intense working practices, but without that initial intense push the company may not have grown or survived, to afford it. (Missing the initial start-up intensity as the company matures is one reason why founders leave successful companies to start again.)

But I don’t think this debate should really rest on economics. It’s really about choice. Many of us – particularly entrepreneurs – like what we do and while it’s sometimes hard it’s not without reward. Many employees like their work too and enjoy spending time with their colleagues, which may explain why John Maynard Keynes’s prediction of a 15 hour work week proved incorrect.

If the pandemic breaks down the expectation that people work 5-day work weeks when both employer and employee want to work fewer hours, that’s great. But the “universal approach” would take away our autonomy.

Oh when the saints
I may be a little biased, but our research is getting better and better each year. We can’t do it without the support from our sponsors, and our growing group of paid Advisers, who freed us to be able to write the recent AI report and our previous Copyright paper.

As well as corporate sponsors, a couple of entrepreneurs have also funded research that they’re passionate about. In recognition of this, we’ve created a new category of Patron to go alongside our Advisers and Supporters.

Our first Patrons are Chris Hulatt, Co-Founder, Octopus Group for support of our Future Founders report, which uncovered the views of the next generation towards entrepreneurship, and Sukhpal Singh Ahluwalia, Founder and Chairman of Dominvs Group, for his support of our influential Job Creators report, which set out the contribution of immigrant founders.

If you have a particular passion for an area of policy that you would like to support, just drop me an email.

Introducing Aria
Earlier this year, the Government announced the launch of a new research agency to support high risk, high reward science: the Advanced Research & Invention Agency (ARIA). Today, we announce Aria – a low risk, high skilled member of The Entrepreneurs Network’s growing team.

Aria Babu is a Senior Researcher and the Head of the Female Founders Forum, having written the Resilience & Recovery report before formally joining us. She has written a short introductory blog here and please feel free to drop her an email to say hello.

Sign up to future newsletters here.

Aria Babu joins The Entrepreneurs Network

I’m new at The Entrepreneur’s Network and thought I would introduce myself.

I’ve been around for a while. I’ve done some freelance work for The Entrepreneur Network and the Female Founders Forum. I wrote the Resilience and Recovery report in October, and I have also written a couple of newsletters and blogs.

I’ve had a reasonably varied career up to this point. My first full time role after university was at The Small Business Charter. The Small Business Charter works with business schools to encourage them to support small businesses, both providing support to already existing SMEs in their area and by encouraging their students to start their own businesses. While I was there I helped on a bid for BEIS funding for an SME leadership training programme, which was successful and is now a fully funded scheme with 20 participating business schools. The scheme includes peer-mentoring, which we included, partly because the evidence in The Entrepreneur Network’s report Management Matters.

After that I joined the consultancy Public First. On the policy side, I worked on tech policy, R&D, and pharmaceuticals. On the campaigns side we did projects based on public opinion and through that I have somehow ended up on the front page of The Times. (See if you can spot me.)

I have also worked at a European Space Agency funded start-up, making the world a better place by using satellites to monitor biodiversity.

If you recognise me for anything, it is probably because during the first lockdown I made a political compass quiz which went viral on British Politics Twitter and was mentioned in UnHerd and on the New Statesman podcast.

I’m hoping this eclectic background brings a lot to The Entrepreneur Network. It’s a small and agile team so I think the fact that I’ve done a little of everything is going to be very helpful.

I will be running the Female Founders Forum, and doing some combination of comms, policy, and operations. My main areas of interest are tech, feminism, and housing. My hobbies outside of work are incredibly lame. I’m learning to code, play every Taylor Swift song on the piano, and I run a weekly rationalist book club.

If after reading that last sentence, you still want to talk to me, shoot me an email at aria@tenentrepreneurs.org.

Education Entrepreneurship Monthly – March 2021

Welcome to the March issue of Education Entrepreneurship Monthly from The Entrepreneurs Network – our monthly update covering news, views, research and events of interest to entrepreneurs in education. You can read past updates here.

Human capital. This month’s budget made it clear that the Chancellor is convinced that human capital is integral to economic growth. He announced a new scheme, Help to Grow, to encourage small businesses to adopt management best practices and take fuller advantage of productivity-enhancing software.

Under the scheme, business schools will deliver a ‘what-you-need-to-know’ curriculum and practical peer mentoring programmes. Businesses will also be able to benefit from free advice on efficiency-improving software. Unfortunately, the voucher discounts, just as entry to the mentoring programmes, are closed off to businesses with fewer than 5 employees.

As The Entrepreneurs Network’s Sam Dumitriu noted in his response to the Budget announcement:  “Management practices explain almost a third of the differences in productivity between and within countries. And pre-pandemic data suggests that if the UK’s 1.1m micro businesses doubled their uptake of key digital technologies, it would lead to a £4,050 average productivity for the millions of workers they employ.”

If you’re interested and want to take part, you can read a recent Policy Update which breaks down the specifics of the scheme for entrepreneurs.

In a Budget boost for Higher Education student recruitment, employers, and start-ups, the promised detail of a new Graduate Visa has also been published. From July, graduates with the visa will be able stay in the UK for two years after graduation. Employment of graduate talent right out of university will become much easier, with less need to worry about visas, which is a vital step towards unlocking an important talent pool from which to resource our economy.

The government’s initiatives in Further Education and Skills were met positively. The Chancellor confirmed additional funding for “high quality” work placements and traineeships for 16- to 24-year-olds; a doubling of cash incentives for employers to hire new apprentices; and a new fund for “portable apprenticeships” to better prepare those destined for portfolio careers and project-working. All measures that will be positive for college recruitment and revenue.

Schools. In the midst of a general disgruntlement among teachers about the pressures of Covid-related safety compliance and learning catch-up, many school leaders voiced disappointment that there would be no extra funding for schools beyond existing planned budget increases and catch-up schemes already announced by the government. 

Nevertheless, a budget total of £705m, with a focus on the disadvantaged, £200m for secondary schools to run summer school activities, and roughly the same more for the National Tutoring Programme, is not nothing, and the questions quickly turned to focus on how the money should be spent and intervention design. The latter was argued to be particularly important by the Education Endowment Foundation (EEF) in regard to the value or otherwise of summer schools, which if well-balanced and put together can bring gains for some pupils (up to two months’ progress in some cases).

To maximise the impact, Head of Policy Jonathan Key argued, programmes should utilise trained teachers for small group tuition (potentially adding the equivalent of a further two months’ of progress in the summer school context).

Feedback. According to the EEF Toolkit, ensuring pupils receive high-quality feedback by comparison can be transformative (+8 months). There is broad consensus that well-thought out and explained homework activities, which enable specific and timely feedback, are important, but how this relates to other aspects of good teaching and learning is less clear. It’s an area that teachers know is in need of improvement. An indicator of this was given this month in a TeacherTapp survey of over 8,600 responses. The question focused on the new technology applications they’d used over the past year, and the results reveal a strong inclination to make changes to the way they approach homework and feedback.

Exams and assessment. Finally, even as the new Education Recovery Tsar, Kevan Collins was highlighting the need for renewed effort in the area of formative assessment, and for restoring faith in assessment more generally, a great confusion was erupting over arrangements for this summer’s 14-19 exams. While the government confirmed that teachers will have lead responsibility for determining grades, based only on what students have been taught, and drawing on a range of evidence that includes mocks, coursework and optional exam board set questions, educationists largely concurred that we are walking into a minefield. Multiple checks will be built into the system, including peer checking in schools, sign-offs and exam board moderation support.

While Ofqual published teacher guidance and information for exam centres on how teacher-assessed grades should be determined and submitted, one HMC head nailed the problem with the whole approach: what if students from different schools/exam centres start comparing their experiences and questioning whether allowing these diverse approaches is fair? “Plans will be thrown into chaos if pupils are permitted to challenge not only the decisions themselves but also the basis on which they have been made,” he said. Meanwhile, a poll conducted by The Student Room Group found students not far behind: 52% thought that exam grades this year would not be fair to them. 
 

News and Views

What did the 2021 Budget mean for the UK tech sector and COVID-19? Executives, entrepreneurs and investors give their views. BusinessCloud.

A year into the pandemic: Reflections on how education systems responded & where we are heading. Brighteye Ventures.

To raise funds or not to raise funds? Vadim Rogovskiy, serial tech entrepreneur and investor. TNW.

The 5 main reasons VCs reject start-ups. RLC Ventures.

UK tech investment hits record levels as TechNation’s annual report voices concerns about the sector’s increasing reliance on foreign investment at later stages. Relocate Global.

Europe suffers from lack of late-stage investors. Over 80% of later stage tech venture capital in Britain comes from overseas investors. It’s a Europe-wide problem. Suranga Chandratillake of Balderton Capital in Growth Business.

vc:20 – The Twenty Minute VC, with Harry Stebbings. Inside the world of Venture Capital, Start-up Funding and The Pitch. Harry Stebbings.

How to become an entrepreneur. The John F. Kennedy University's Institute of Entrepreneurial Leadership re-envisions its traditional class as a free, open-source, interactive online learning experience with CurrikiStudio. Details here.

Greed is Groundless

The Prime Minister caused a kerfuffle this week by saying on a call with MPs that the reason we have successful vaccines is because of capitalism and greed. He quickly withdrew the remarks after the call.

Oliver Stone and Stanley Weiser are partly to blame for this trope. According to Gordon Gekko in Wall Street: “The point is, ladies and gentlemen, that greed, for lack of a better word, is good.”

Gekko was wrong. We do have a better word: self-interest.

Dr Eamonn Butler explains the distinction well: “Greed is acting on one’s own interests, accumulating things regardless of one’s needs, without a care for the interests of others, and with contempt for social conventions, even laws. Self-interest, by contrast, is a natural human characteristic, without which none of us would survive. It prompts us to act in ways that fulfil our needs; but more often than not, that rational, long-term self-interest requires us to collaborate with and help others.”

Enlightened self-interest can also encompass the desire we have to make others happy and do good, or you can define that separately as altruism or charity if you prefer. But the point is that in market-based economies governed by the rule of law, our commercial interests are directed towards the public good.

As Johnson’s comments were made in relation to vaccines, let’s just consider Dr Ugur Sahin and Dr Özlem Türeci, the couple who founded BioNTech. In a New York Times article Dr Sahin is quoted as saying: “It felt not like an opportunity, but a duty to do it, because I realised we could be among the first coming up with a vaccine,” and “trust and personal relationship is so important in such business, because everything is going so fast.”

What is true of pharma entrepreneurs is true for all. Sure, we are all to a greater or lesser extent greedy, but it doesn’t do much to explain how the vaccines got made, nor the motivations of entrepreneurs in general. Profit and loss is just a useful way of getting more of what we want and to this end an argument can be made – and Tom Chivers does exactly this for Unherd – that pharma should have been able to make more profit.

Out of the crooked timber of humanity, entrepreneurship can make the world a better place for everyone.

METR reading
The Tax Foundation has produced a report on the marginal effective tax rates (METR) of the recent Budget. It’s analysis chimes with our immediate response.

On the positive side, it concludes that the 130% super-deduction will encourage additional investment in plant and equipment; however, its expiration alongside the planned hike in corporation tax in 2023 will cause the METR on plant and equipment to increase in the long run.

The pending tax hike will also reduce the incentive to invest in other assets such as IP and structures, and firms will have an incentive to delay IP investment because the effective tax burden will be higher in 2021 and 2022 than in 2023. The report argues that if the Government had provided full expensing with an increased corporate tax rate, investment would have been increased in both the short run and the long run.

All is not lost. The Chancellor has time to announce that full expensing – that is a 100% deduction – will come in 2023, and he could always pull back on the 25% hike if the public finances look better.

Brains trained
There’s a new edition of the Brain Business Jobs Index, which looks at the number of highly knowledge-intensive enterprises across 31 countries and 284 regions. We launched a previous version of this paper a few years ago.

The United Kingdom has two of the top 10 European knowledge regions: Berkshire, Buckinghamshire and Oxfordshire, and London. These are lauded for having a higher concentration of knowledge-intensive occupations as a share of the working-age population.

Between 2012 and 2019 the United Kingdom added 600,300 so-called brain business jobs. However, in 2020 we lost 30,200, with the concentration of the population employed in knowledge-intensive occupations decreasing slightly from 8.2 percent in 2019 to 8.1 in 2020.

The report argues that there is a link between business brain jobs and low unemployment – with the Slovakian capital region of Bratislava, the region with the highest concentration of brain business jobs, having an unemployment rate of just 2.4%.

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Make it Till You Fake it

The future is now. Artificial intelligence is no longer just about beating humans at chess and Go, it’s revolutionising whole industries and will ultimately revolutionise them all. If anything, the transformative power of this already lauded technology is still being underhyped.

That’s why we launched a report yesterday on how to make the UK the best place in the world for AI innovation. In his pithy briefing paper, former Head of Regulation at the Office for AI Séb Krier sets out eight recommendations for achieving this goal:

– Create a pool of cloud compute credits for the UK R&D ecosystem.
– Upgrade public data infrastructure and open up datasets.
– Explore innovation-friendly regulatory markets.
– Work closely with the EU to review and improve GDPR.
– Lower barriers to immigration and actively attract foreign talent through targeted scholarships.
– Shun protectionism and proactively lead global AI governance efforts.
– Foster public trust in the public sector’s use of AI by giving the CDEI greater independence and allowing it to audit public sector algorithms.
– Ensure the UK’s intellectual property regime is fit for AI by creating an exemption for for-profit data and text mining.

We are well poised to build on our strong foundations. As our Research Director Sam Dumitriu discusses in an article for politics.co.uk, in a year when scientists produced the first mRNA vaccines to help defeat a pandemic, it may be that DeepMind’s use of AI to solve the protein folding problem is 2020’s greatest discovery. And while DeepMind was sold to Google, as I argue for Forbes we will necessarily need to ally with the US on a technology that comes with such profound geopolitical and perhaps even existential threats.

The UK has been a driving force in the development of AI as Séb explains in this article for CapX, and back in 2018 we were one of the world’s first countries to announce policies to strengthen the sector through our AI Sector Deal. However, on the policy front things have stalled since then. Until last week, that is, when, partly in response to the AI Council’s AI Roadmap, the Government announced its intention to publish a National AI Strategy later this year.

Our paper aims to feed into that strategy, but prior to that we want it to start a discussion around our recommendations and whether we need anything else. Watch this space for a virtual roundtable – or register your early interest.

And this is just the first technology/sector/industry specific briefing paper. Our next will be on drones. If there is another technology/sector/industry that you think is ripe for policy recommendations just let me know which and why (it doesn’t need to be tech focused).

Nation building
According to the annual Tech Nation report, tech investment in the UK reached $15bn in 2020. Only the US and China get more and last year we pulled further away from Germany and France. The UK tech startup and scaleup ecosystem is valued at $585bn, which is 120% more than in 2017, and more than double the next most valuable ecosystem, Germany, at $291bn. The UK is also more attractive to international investors than ever, with 63% of investment into UK tech coming from overseas last year – up from 50% in 2016.

London is fourth for tech VC investment globally behind San Francisco, Beijing and New York at $10.6bn, with the percentage of total UK VC investment made in London increasing from 73% to 88% between 2018 and 2021. 

Despite this very good news, some will be concerned about the regional breakdown and others may be worried that more cash is coming from abroad for national security reasons. However, I think if there is a concern, it is around the drop off in funding going to tech startups. 

The report draws attention to the fact that investment in seed stage companies is decreasing as a proportion of overall tech VC investment (14% to 6% over 5 years) – and along these lines, John Spindler of Capital Enterprise draws attention to Beauhurst research in a LinkedIn post which shows that the number of successful first-time deals is now below 2012 levels. 

As John suggests: “It might be cyclical, it might mean the incentives to invest in first round raises (the most risky) needs refreshing or it might be that the amount of investment going into scale ups and their ability to suck up talent and attention is having an impact.” This is something we will be keeping an eye on.

Gig a lot
Internet speed used to be a significant concern for business owners, but over the years it went down their list of gripes. The pandemic has changed that, as many employees are expected to continue to work from home even after the pandemic. Faster broadband has once again risen up the agenda.

Today the Government has launched a £5bn ‘Project Gigabit’, with an extra £210m worth of vouchers to help those with slow speeds and £110m to connect up to 7,000 rural GP surgeries, libraries and schools. There is also a call for evidence on using satellite and 5G technology to connect very hard to reach areas, which reportedly could involve Starlink, Elon Musk’s network of satellites.

Vouchers will be worth up to £1,500 for homes and £3,500 for businesses to help to cover the costs of installing gigabit broadband. The voucher will launch on Thursday 8th April 2021 and you’ll be able to check your eligibility here.

This is an extract from our Friday Newsletter. Sign up to future newsletters here.

On Top of Your Voice

This week we’ve put out a couple of Policy Updates on how the Budget announcements will impact entrepreneurs. So far we have looked at the Help to Grow Scheme and the Corporation Tax announcements. Next week we let you know about reforms to the via system and key consultations announced in the Budget. We’ll share more details in our Policy Update newsletter (sign up here), but I just wanted to alert you to three consultations that have piqued our interest and may be of interest to you. After all, we exist to ensure entrepreneurs have a greater voice in policy making.

In the last couple of years we’ve argued that the scope of the R&D Tax Credit should be expanded to cover data and cloud computing (Dom Hallas from Coadec explains why in our joint Startup Manifesto). Rather surprisingly, former Prime Minister Theresa May bemoaned in Parliament this week that there have already been a number of reviews but little in the way of action. I hope and expect this will be one last push. The Government is keen to hear from firms that undertake R&D, or might consider doing so in future. You can read the full consultation here.

There’s also a Call for Evidence into the Enterprise Management Incentive, which we’re a big supporter of. But we think it needs to be more generous as other countries have copied – and improved upon – our scheme. A consultation was also announced to look at how the UK can get more pension fund investment into VCs, which is something I’ve written about before and features heavily in our Unlocking Growth Report with the Enterprise Trust.

Let Sam Dumitriu know if you are planning to respond to any of these consultations (or any others). We will be doing so and it might be more efficient for us to coordinate things, or run a virtual roundtable if we get enough interest in any of them. We recently did this with the help of our Research Adviser Dr Chris Haley and our Advisers Giovanna Forte and Mark Neild on the Green Paper on transforming public procurement, which worked really well.

If you want to see the government’s open consultations, you can do so at Gov.uk here. It’s a little unwieldy, so it might be easier just to sign up to our ad hoc Policy Updates.

It's life, Jim
The Department for Digital, Culture, Media and Sport (DCMS) has outlined its 10 Tech Priorities. Number 6 on the list is “unleashing the transformational power of tech and AI”.

It reads: “Artificial intelligence has the potential to fundamentally transform our lives. The UK already has a strategic advantage in this new frontier, and our upcoming National Artificial Intelligence Strategy, which we will publish later this year, will help us build on our world-class research and innovation base. We will also work to solidify our global leadership in the development of quantum computing and other transformative tech.”

Next week we will release a briefing paper written by Séb Krier, former Head of Regulation at the Office for AI, on how we make sure the UK continues to punch above its weight when it comes to AI. I’ll write about it here next week, but as with previous reports, just let me know if you want me to send you a copy on the morning of its release.

You may also want to check out Stanford’s comprehensive and fascinating AI index, and if you have an ongoing interest in AI and aren’t already signed up for it, you should check out Matt Clifford’s Thoughts In Between newsletter, which is great at unpicking the policy challenges around AI – and much else besides.

Works in progress
For the intellectually curious, I would wholeheartedly recommend checking out the Works in Progress Oxford Union conference tomorrow.

The first is a conversation between the CEO of the Royal Statistical Society (and our Research Adviser) Stian Westlake and Dr Rachel Laudan – author of the award-winning book: Cuisine and Empire: Cooking in World History. There is also a conversation between the economist Dr Tyler Cowen and Patrick Collison, the founder CEO of Stripe, as well as between the cognitive psychologist, linguist, and popular science author Dr Steven Pinker and the psychologist Dr Stuart Ritchie. Find out more here.

The Budget

The Budget could be sliced and diced in a hundred different ways. You’ll be pleased to know I won’t do that. I’ll just focus on three areas where our work has had some influence on what was announced.

First off is the so-called “super-deduction”. The biggest announcement for the UK’s competitiveness is the proposed increase in the main rate of corporation tax to 25% on 1st April 2023. This will only apply to businesses making a profit over £250,000, with it tapered between £50,000 and £250,000, and a small profits rate (SPR) of 19% for companies with profits under £50,000.

Even if you won’t pay this, as the Office for Budget Responsibility states, it “will increase the cost of capital, lowering the desired capital stock and business investment”. As Paul Johnson from the Institute for Fiscal Studies writes: “With this increase Mr Sunak is taking a gamble that raising corporate taxes further up the international pecking order won’t have too terrible an effect on investment.”

On the face of it, at 19% it looks like the UK should be able to raise corporation tax without too much trouble – only Hungary, Ireland and Lithuania are lower. However, while former Chancellor George Osborne was gradually cutting corporation tax, capital allowances were also being scaled back, meaning that in 2019 the UK’s effective marginal tax rate was only the 25th best out of the 36 OECD countries analysed.

That’s why the Chancellor had to pull the “super-deduction” rabbit out of the hat. It’s an idea I’m very familiar with because our Research Director, Sam Dumitriu, has been instrumental in making the case for increasing capital allowances since 2017. He was one of the first to raise the idea of full expensing in the UK, with his report for the APPG for Entrepreneurship, and last year in a more detailed report, with Pedro Serôdio, estimating that moving to a system of full expensing would permanently boost investment by 8% and overall productivity by 3.5%.

He has written an article explaining the policy, which I recommend reading if I haven’t explained it clearly enough. If you read it, you’ll learn we need to do two more things to help offset the negative impacts of the increase in corporation tax. First, we (and others) are trying to get clarification that intangibles can be included under the super deduction. Some commentators assume they can’t, though there is already wiggle room for claiming tax relief for them.

Second, Rishi should have announced that when the 130% super-deduction ends, we will move to 100% full expensing. The stakes are high. Without this, in 2023 we could have one of the worst tax systems for businesses in the OECD.

Good points
As quoted in City AM, I think UK entrepreneurs will welcome the new ‘elite points-based visa’ announced in the Budget. It will come into force by March 2022 and allow those with a job offer from a recognised UK scale-up to qualify for a fast-track visa. Setting the criteria for what counts as a scale-up or high-growth firm will be a challenge, but if it leads to more high-skilled immigration then I’m supportive of it.

Also, allowing holders of international prizes and winners of scholarships and programmes to automatically qualify for the Global Talent visa will offer the necessary assurance to the very best and brightest that they are welcome in the UK.

We also welcome the expansion of the Global Entrepreneur Programme and a review of the Innovator visa. The Innovator visa is currently unfit for purpose, needing fundamental reforms to align incentives so the pricing is clear and more high-quality organisations become endorsing bodies. As our Job Creators report found, prior to Brexit 49 per cent of the fastest growing businesses in the UK had at least one foreign-born founder. If we are to continue to attract the best and brightest then we need to ensure that the visa process is as fast and unbureaucratic as possible.

And we had more good visa news yesterday. As our Adviser Zenia Chopra writes, the new Graduate visa will be returning on 1st July 2021. This is the much anticipated return of the post-study work visa and will mean that graduates can stay in the UK for two to three years after they have graduated. For startups, it will mean that it will be a lot easier to employ graduates out of university, with no need to worry about visas – at least for the first couple of years.

And yet more good news. Apparently the UK is prepared to offer good terms on high-skilled migration as part of a free trade deal with India. Don’t forget: Indian high-skilled migration played a big part in building Silicon Valley.

Grow up
The Budget also announced Help to Grow (you can already register on the website), a new scheme designed to help businesses adopt management best practices and productivity enhancing software. We have long championed the value of management practices and technology for improving UK productivity.

Our Management Matters report showed that management practices explain almost a third of the differences in productivity between and within countries. And as our Upgrade report argued: “If the UK’s 1.1m micro businesses doubled their uptake of key digital technologies, it would lead a £4,050 average productivity boost for the 4.09m workers employed by micro businesses, restoring four-fifths of lost productivity growth since the financial crisis, enabling businesses to bounce back faster post-lockdown.”

As Sam says: “It’s right then to harness the UK’s world class business schools to deliver a programme of peer mentoring to get more businesses to adopt best practice. It’s also right that they’ll be provided with free, impartial advice and financial support to purchase productivity enhancing software. But there’s a risk innovative business-to-business startups will be cut out from the scheme. It is vital that startups are involved in the design of the scheme and that software vouchers do not only go to tech giants.”

For those of you who are subscribed to the APPG for Entrepreneurship Newsletter, you’ll have seen our broad summary of the reactions of some of the main business groups (there's more in the News and Views section). And we will send out Policy Updates (sign up here) in the coming weeks as the practical implications of the Budget announcements are unpicked.

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