Seeing is Believing

Last week, I pointed readers in the direction of an article from Matt Clancy which considered the contagious nature of entrepreneurship. Today, I can’t resist directing you towards his excellent follow up article, which should be essential reading for anyone who wants to help make the UK more entrepreneurial.

Clancy argues two things. First, that entrepreneurship transmits from peer-to-peer more readily when peers are similar, and second, that the positive impact of being around entrepreneurs falls off quickly once that idea has been planted.

“You have to see it to be it”, or a variation of the quote, has been attributed to many people, including Billie Jean King when making the case for getting girls to participate in sports. But is it true? When it comes to entrepreneurship, the answer is yes.

We cited some of the same evidence in our 2018 Mentoring Matters report as part of our Female Founders Forum project with Barclays, but Clancy’s summary confirms it. He notes that “adopted sons are more likely to become entrepreneurs if either parent is an entrepreneur, but the effect of fathers on sons is generally more than twice as strong as the effect of mothers. For daughters, the effect is even stronger. It turns out adopted daughters are more likely to become entrepreneurs only if their mother is an entrepreneur – adopted daughters raised by entrepreneurial fathers are no more likely to become entrepreneurs than those raised by non-entrepreneurial fathers.”

It’s not just gender. Clancy’s article cites evidence that an entrepreneur’s employees are more likely to be inspired to follow in their footsteps if they share characteristics like being of a similar age, having similar educational backgrounds, or being born in the same place.

But this doesn't have an effect when another significant intervention has already taken place. In other words, if a mother has already inspired their daughter to become an entrepreneur, it doesn’t matter if they then go on to be an employee of a female founder. They’ve already got the entrepreneurial bug.

This suggests that when we aim to inspire people to start businesses – whether that’s through government schemes, the education system, charities, or private sector initiatives – focusing on those who have never had any previous exposure to entrepreneurship should yield the best results (although this would be worth running as a randomised to control trial, to add to the weight of evidence).

And it seems that the person making the intervention matters too. Once again, the impact of competing shared and unshared characteristics would make for a great experiment, but until then we should be guided by the folk wisdom and evidence that people are inspired by people similar to them.

A lot of these interventions rely on entrepreneurs giving up their time – for example, by going into schools, colleges or universities. But not everyone has the same time on their hands, especially if they’re busy breaking barriers. So if it turns out, for example, that meeting an entrepreneur from the same ethnic background is very significant for young people being inspired (again, we could do with more evidence around this), then it may well be worth compensating entrepreneurs for their time – especially in cases where we may want more founders from a demographic that is under-represented. By virtue of there still being so few of them, they will be harder to find.

One final thought. We also need to think about the quality of the businesses that come out of these interventions. We don’t want people being inspired to start businesses that are destined to fail. While failure isn’t always and everywhere a bad thing for individuals and society, interventions that inspire but don’t adequately equip entrepreneurs to succeed could be doing more harm than good.

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D:Ream On

With a seemingly growing number of inspiring innovations on the cusp of revolutionising our world, politicians could, perhaps, be forgiven for focusing their policy interventions exclusively on high-tech sectors. However, a new report from the Institute for Government’s Giles Wilkes suggests that this would be a mistake.

In his analysis of the UK’s flagging productivity since the 2008 financial crisis, the former adviser to Theresa May and Vince Cable argues that no one sector is to blame for the decline. As Wilkes explains in this handy Tweet thread, if we had kept to the trend of 1998-2008 GDP growth, the economy in 2018 would have been £300bn+ larger. He concludes that entrepreneurs across all sectors need the right policies to thrive if in the next decade we will once again feel like things can only get better.

Politicians reading his report may need to extend their thinking around innovation to sectors not always associated with it, such as hospitality and retail. Wilkes recommends a whole gamut of different policy levers to pull, from upgrading management practices, stimulating the adoption of technology, making sure the population is skilled, improving infrastructure, and ensuring businesses have ready access to finance. Of course, this isn’t just a role for the government, and they are already doing a lot of this, but we and other organisations aren’t short of good ideas of how these things can be done better.

Wilkes finds that many so-called lower-value sectors have eked out impressive productivity gains over recent years, and makes a convincing case that policy makers shouldn’t regard high-employment sectors as fundamentally a drag on growth. Off the back of this report, entrepreneurs in less sexy sectors should take the opportunity to be even more vocal about what they need to help them grow. Along these lines, it’s important that organisations like ours resist the temptation to just focus on high value sectors in our efforts to impact policy.

Decent exposure
In a compelling article, Matt Clancy tears through the academic literature on the impact that exposure to entrepreneurs has on encouraging entrepreneurship.

Study after study shows a positive link. Whether it’s scientists collaborating with peers who have a history of commercialisation, people working with former entrepreneurs, or even living in entrepreneurial neighborhoods, the vast majority of evidence suggests that entrepreneurship is like a bug, jumping from person to person.

Clancy presents evidence to show that this looks like a causal relationship – it’s not just entrepreneurs being drawn to each other. But he also cites an important paper that contradicts the other papers’ findings. Josh Lerner and Ulrike Malmendier used a natural experiment from Harvard Business School (HBS) to show that exposure to experienced and successful former entrepreneurs is doing the opposite, putting peers off starting businesses. Clancy thinks, however, that they might be preventing inexperienced students from pursuing business ideas that would be doomed to fail. After all, about half of HBS graduates do still eventually go on to start one or more businesses in the first 15 years after graduating.

It seems pretty clear that the passion for entrepreneurship can be shared, though we should also care about the message and therefore the messenger. Clancy, who last year wrote our report on Remote Work, will follow up on this in his next article. You can subscribe to his excellent Substack here so you don’t miss out.

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Exhibiting Greatness

Like most organisations, we’re trepidatiously planning in-person events for later in the year. Once again we’ll launch reports on the terraces of the House of Commons and Lords, traverse the UK to host roundtables and panel events – seeing many of you after over a year, and hopefully meeting many of you for the first time.

However, the event I most want to attend isn’t happening (yet).

So far it’s been best articulated by our head of innovation research Dr Anton Howes. It’s modelled on the Great Exhibition of 1851 and he’s written about it in our recent essay collection, which was reproduced as an article for CapX.

After opening on 1 May 1851, the Great Exhibition attracted six million visitors over five and a half months. According to one newspaper at the time, the crowd was “a restless sea of human beings, agitated by the strong impulses of curiosity.” Centred around the prefabricated majesty of Sir Joseph Paxton’s Crystal Palace, it was an incredible success. After a fire in 1936, only scattered ruins remain of the original Palace, but its legacy in spurring and inspiring innovation endures.

A century after the Great Exhibition, the government tried to replicate its success, but fell short. According Anton, the organisers of the 1951 Festival of Britain “did things entirely back-to-front”, and he suspects the organisers of next year’s Festival UK* 2022 are making the same mistakes.

So what was so special about the Great Exhibition?

First and foremost, it wasn’t just about celebrating greatness – it was about improving things. The organisers wanted to encourage invention, introduce consumers to the latest technology, and reduce trade barriers. Also, it was entirely self-funded. The government backed and supported it through a cross-party Royal Commission to oversee the team that did the day-to-day running of things, but a majority of the money was raised through a public subscription.

For those wondering whether a modern-day crowdfunding campaign would work, have a read of what Anton has in mind:

“Visitors would actually get to see drone deliveries in action, take rides in a driverless car, experience the latest in virtual reality technology, play with prototype augmented reality devices, see organ tissue and metals and electronics being 3D-printed, and industrial manufacturing robots in action. They would have a taste of lab-grown meat at the food stalls, meet cloned animals brought back from extinction, perform feats of extraordinary strength wearing the exoskeletons used in factories, fly in a jet-suit, and listen to panel interviews with people who have experienced the latest in medical advancement. Perhaps a commercial space launch using the latest technology might be timed to coincide with the event, to be livestreamed on a big screen for all visitors to see. Visitors would naturally meet the inventors and scientists and engineers who developed it all, too.”

Attracted by the pioneering inventions of the day, people across the country returned again and again to the Great Exhibition. With virtual reality, rockets and literally being able to fly we have the technologies for an even greater exhibition. If Anton gets his way, prepare, once more, to be agitated by the strong impulses of curiosity!

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Hype Potential

Yesterday the Government released its long-awaited Innovation Strategy. It makes the right noises on issues like science funding and regulation, though is so far light on detail. One policy announcement, however, really stands out: immigration reform.

As my colleague Sam Dumitriu tweeted, the Government has gone further than few expected, with the creation of the High Potential Individual visa route.

The High Potential Route is (potentially) truly revolutionary. It will mean that people who’ve graduated from a top global university will be able to come into the UK without the requirement of a job offer. This would be an open door to the sorts of entrepreneurs identified in our influential Job Creators report, who when we last looked were behind half of the UK’s fastest-growing startups.

The scale-up route is also worth mentioning. It will allow scaleups – that is, companies that can demonstrate an annual average revenue or employment growth rate over a three-year period greater than 20%, and a minimum of 10 employees at the start of the three-year period – to get a fast-track verification process for their employees.

The Strategy also promises to revitalise the Innovator route, by simplifying and streamlining the business eligibility criteria; fast-tracking applications whose business ideas are particularly advanced; scrapping the requirement to have at least £50,000 in investment funds; and removing the restriction on doing work outside of the applicant’s primary business.

While people will tell you otherwise, Brexit was fought and partially won over immigration concerns. That seems incredible now. And while some might argue that the High Potential Route won’t offset the loss of free movement, a pretty strong argument can be made that they’re getting close. (Incidentally, we have a few other ideas in our recent essay collection with the Tony Blair Institute.)

More broadly, the Strategy aims to support businesses that want to innovate; attract the world’s best innovation talent to the UK; ensure innovation institutions serve the needs of businesses and places across the UK to spread prosperity; and stimulate innovation to tackle the major challenges faced by the UK and increase the our capabilities in strategic technologies. This reflects our own policy priorities and way of thinking.

But while the framing and analysis of the challenge is first-rate, we won’t know the ‘Innovation Missions’ – which aim “to set clear direction, urgency and pace on the issues confronting the UK that we want to tackle with the private sector in the coming years” until a new National Science and Technology Council has been created.

And while we now know the seven pillars that government is going to focus upon – Advanced Materials and Manufacturing; AI, Digital and Advanced Computing; Bioinformatics and Genomics; Engineering Biology; Electronics, Photonics and Quantum; Energy and Environment Technologies; and Robotics and Smart Machines – there is still a lot to be worked out.

Still, we can't fault the immigration announcements. At least, not yet.

Page the Treasury
After John Spindler of Capital Enterprise raised the problem months ago, we’ve been keeping an eye on early-stage funding. We’re not the only ones. SFC Capital and Beauhurst have just released a new report showing that the number of first-time funding rounds into UK seed-stage startups declined for a second consecutive year. There were 1,427 first-time seed-stage deals completed in 2020, down 17% from 2019’s 1,715, and a 36% drop from the 2,055 completed in 2018.

Commenting on the decline in City AM, Stephen Page said: “some of this decline can be attributed to the impact of Covid-19 in 2020, from dented confidence to changes to the investment landscape and founders’ priorities caused by the Government’s introduction of the Future Fund and other financial relief programmes. But only some.”

Page calls on the Government to focus on SEIS reform, increasing the amount of public money allocated to seed-stage funds, and simplifying bureaucracy for early-stage fund managers. 

Over the years we’ve undertaken a lot of work supporting SEIS and EIS and reforms to the processes. We've also been very supportive of the work of the ​​EIS Association. If you’re interested in getting involved in this policy area, we have a virtual roundtable with Stephen Page in September as part of our Something Ventured programme with FieldHouse Associates at which we will discuss this. Just drop us an email with a line or two about why you want to attend.

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What proposed tech merger rules mean for startups

The government has opened a consultation on new plans to regulate Big Tech. But the proposals it is considering may end up hurting British startups and entrepreneurs unintentionally.

Under the plans being contemplated, certain companies would be deemed by the Competition and Markets Authority (the CMA) to have “strategic market status” in some activity – like Google in Search and digital advertising, or Facebook in social networking and social media advertising. As well as measures to regulate how companies like Google and Facebook run some of their services, and powers to impose Open Banking-like data sharing on them, the government is looking at plans to make it significantly harder for Big Tech companies to acquire other companies.

These companies would face a new and much stricter mergers and acquisitions regime, in which any deal thought to create a “realistic prospect” of reducing competition would be blocked. This would apply to any deal involving the company at all, even in markets and activities in which they have not been deemed to have “strategic market status”.

What this “realistic prospect” test means in practice is ambiguous. It has been interpreted as meaning a deal that has a “greater than fanciful, but below 50%” prospect of reducing competition, which doesn’t really clear things up either, though “greater than fanciful” indicates a very low threshold. This contrasts with the current threshold, in which only deals the CMA judges to have a greater than 50% chance of reducing competition are blocked. And it implies that many deals that could, in fact, increase competition would be blocked too, because of the “greater than fanciful” chance that they would not.

This could lead to many deals being blocked, and more than the government seems to think. It has argued that since the current merger review process already involves a “realistic prospect” test, for deciding which mergers to subject to in-depth review, we can use that as a proxy to judge how many deals would be blocked. But the CMA has limited resources and, in referring deals to additional scrutiny, is likely not to prioritize deals that do have a “greater than fanciful” chance of reducing competition, but probably still a lot less than 50%. Under the new proposals, without that 50% test, it could be far more trigger-happy in its interpretation of “greater than fanciful”.

This kind of regime could make life tougher for British startups. Acquisitions were the cause of 90% of startup exits in the United States between 2008–18, and half of US startup founders surveyed said that acquisition was a long-term goal for them. Over the past five years, Google, Amazon, Microsoft, Facebook and Apple have bought over three hundred smaller companies between them, including British startups like Shazam and Dataform.

Making these kinds of deals more difficult – or, indeed, impossible – could make it harder for entrepreneurs to exit businesses they have built, deterring them from setting up in the first place or preventing them from starting new ones. It could also make it more difficult to access investment, since venture capital investment in startups appears to be sensitive to takeover rules. Some founders may decide that life is easier in jurisdictions like the United States and set up there instead, hurting the overall startup ecosystem in the UK.

These rules may end up reaching further than just deals involving Apple, Google, Facebook, Microsoft and Amazon, too. “Strategic market status” as described by the government is a broad concept, and could end up applying to companies like Uber, Deliveroo, Visa and Mastercard, and big, gatekeeper-like firms in other markets, especially as more and more of the economy becomes digitalised. That means that the knock-on effects for entrepreneurs of these proposals could be broader than many realise, if they find a would-be buyer unexpectedly deemed to also have “strategic market status”.

There is still some prospect for avoiding these changes. Unlike most of the other proposals being consulted on, the government has been explicit that it is more open-minded about proposals for mergers. And, so far, it does not seem to have heard much from entrepreneurs themselves about whether a stricter mergers regime would be good or bad for their businesses and the wider startup ecosystem. It is easy – and usually accurate – to be cynical about government consultations as a box-ticking exercise. But in this case, there may be some possibility of avoiding the worst outcome on the table. You can read and respond to the consultation here.

Way of the Future

Today we’ve released a collection of essays with the Tony Blair Institute, setting out ideas for how to meet the ambition of making the UK a ‘science superpower’. It includes a preface from Tony Blair and a foreword from Stripe co-founder Patrick Collison.

Be warned! This is an anti-cheems mindset report. But I don’t think it’s unrealistically optimistic. We’re aiming to be solutionists. As Jason Crawford writes this week for MIT Technology Review: “Solutionists may seem like optimists because solutionism is fundamentally positive. It advocates vigorously advancing against problems, neither retreating nor surrendering.”  The alternatives – taking a consistently optimistic or pessimistic stance are common, but unhelpful for actually making the world a better place.

Rather than read a summary of ‘The Way of the Future: Supercharging UK Science and Innovation’, I would prefer you read one of the essays. They aren’t too long. Just click on whatever interests you most from the list below.

• Preface: Tony Blair

• Foreword: Patrick Collison, Co-founder, Stripe

• Executive Summary

• A Digital State: Kirsty Innes and I highlight the benefits for individuals and entrepreneurs of moving to a truly digital state.

• The UK Research Cloud: Seb Krier explains why treating cloud compute power as a new form of digital infrastructure could unlock innovation, reduce bias, and promote diversity in AI research.

• Procuring Innovation: Chris Haley explains how effective public procurement can improve public services, reduce costs, and drive innovation in the wider economy.

• Embracing Experimentation: José Luis Ricón Fernández de la Puente and Joao Pedro De Magalhaes make the case for adopting a more experimental approach to funding research.

• Omics UK: Saloni Dattani and Henry Fingerhut explore how a multi-omic research centre would help accelerate targeted treatment design.

• The Atlas Institute: Henry Fingerhut and Benedict Macon-Cooney argue that we need a roadmap for scientific discovery to help us explore the dark corners of knowledge.

• Building Talent Density: Matt Clifford MBE argues that talent density is key to entrepreneurial success.

• Upstream Innovation: Anton Howes calls for the return of the great exhibition and a new order of chivalry to raise the visibility and status of innovation.

• Operation Paperclip 2.0: Anton Howes, Sam Dumitriu and I argue we should proactively pave the way for the globe’s brightest to come to the UK.

• Testbed Nation: Anton Howes and Sam Dumitriu make the case for why Britain should become a nation of early adopters.

You can also read a Twitter thread here, read Sam Dumitriu's City AM article here, read Sam, Anton Howes and me in CapX on why Britain should actively recruit foreign talent here, and read write-ups of the report on Yahoo Finance here, the Express here and Business Leader here.

As always, sharing the report via email or social media would be greatly appreciated. And if you want to get early notification of our reports, you should sign up as a Member (for free) here.

This was a really fun one for us all to research, write and publish. As I’ve written here in the past, the Tony Blair Institute is really impressing me, so don’t be surprised to see future collaborations.

Patronising, Arrogant and Rude

Culture is king. And like all things monarchical, it’s inherited from previous generations. So while we don’t get to pick how entrepreneurial the culture that we’re born into is, we do have the power to shape it for the future.

As academics like Deirdre McCloskey argue, the Industrial Revolution saw a shift in culture where the value of business, innovation, and entrepreneurship were recognised. But while we have a great legacy, I think we have room for improvement.

Take the media. It’s definitely not adhering to the Peter Parker principle, with their latest programme claiming to reveal what it’s like to be an entrepreneur. Unicorn Hunters, which incongruously features former Speaker John Bercow as a judge, sounds like the epitome of bad culture.

According to the Executive Producer: "Unicorn Hunters is a one-of-a-kind show, providing millions of people with transparent access to select pre-IPO investment opportunities." It sounds dreadful: “This new addictive global show creates a new genre, known as ‘enrichtainment’, seamlessly combining entertainment with the opportunity to build wealth.”

It will join The Apprentice, which, in the words of Matt Clifford “has skewed people’s perception of what starting a business is about” and Dragons’ Den. When surveyed by YouGov for the Center for Entrepreneurs, business leaders called out both for showing an unrealistic portrayal of the startup process, with words like “condescending”, “patronising”, “arrogant” and “rude” used to describe the behaviour of the Dragons in the Den.

Is it any wonder that we recently found that almost two-thirds (62%) of people from deprived backgrounds are doubtful they could start a business, despite having a strong business idea?

On the topic of an entrepreneurial culture, we have just arranged an event with Lord Young of Graffham. Few in government can claim to have had a bigger impact on UK entrepreneurship. See below for more details.

One Chance
What is the most impactful policy initiative or idea that the government could implement, either alone or in partnership with others, that would boost start-ups in the UK?

This isn’t a hypothetical question and it’s not my question. It’s from officials in BEIS who have asked me to ask you. I’ll share every response with them and a few startups will be invited to a roundtable they’re having on this topic next week (although you don’t need to be running a startup, or even be a business owner to respond).

Just drop me an email with your answer. I can’t promise that they will do what you ask, but I can promise that the right people will be reading it.

Cool for Evidence
The new format for the APPG for Entrepreneurship is proving successful. We’ve moved away from weighty tomes, replacing them with virtual events and pithy briefing papers. This is allowing it to cover a lot more ground.

Each theme includes a scoping webinar, Call for Evidence, briefing paper and launch webinar. We now have two calls for evidence open for entrepreneurs and experts to respond to on Levelling Up and the Sharing Economy, and we will soon have another on Space Startups and Scaleups (after this event).

You can respond to the Levelling Up questions here, and the Sharing Economy questions here. Please don’t be daunted by the number of questions. If you only have something to say about one or two of the parts that will be absolutely fine. The final briefing paper will be brief (hence the name briefing paper), so we are looking for quality over quantity.

New rules on pensions

The government has announced a loosening of the pension charge cap which will be implemented in October 2021. 

Pension schemes will be allowed to smooth their performance fees over five years. This means a scheme will be able to invest in longer term assets and will give funds a bit more flexibility. This suits investment in private equity which will often have years where returns are concentrated, for example, if several startups from an investor’s portfolio exit in lucrative IPOs in a short space of time. If that were to happen under the new rules, a pension fund would be able to exceed the cap in one year. 

However Mark Fawcett, the chief investment officer at Nest, says that this modest liberalisation is insufficient to persuade DC schemes to invest and told  the Financial Times that:

The total level of fees levied by most private market funds will remain too high for many DC pension schemes to access [them].

This is an important topic and we have written about it before. Liberalising pension schemes could transform the UK venture capital market and would thus greatly increase the amount of money going to entrepreneurs. In the UK pension funds only contribute 12% of the funding in the VC market, by contrast, in the US they contribute 65%.  

TIGRR, the Government’s taskforce on innovation, growth and regulatory reform,  recommended reform arguing: 

With sensible changes to pensions and insurance regulation that preserve the highest standards of consumer protection and uphold financial stability, the Government could unlock over £100bn of investment in small and scaling-up businesses across the UK, green projects, infrastructure and a range of other areas.

The UK’s total pension market value reached £2.2 trillion at the end of 2019, of which DC schemes made up £146 billion thanks to the introduction of auto-enrolment. In 2028 the UK’s DC pension pot is expected to reach £1 trillion, if the UK is able to unlock just 5% of this figure by then, that is a staggering £50 billion in additional investment. The charge cap (0.75%) on the fees and administrative expenses that can be borne by savers is a sensible investor protection measure in principle, but in practice has driven many schemes towards passive investment to keep the charges well within the cap. UK savers therefore have limited exposure to high-performing ‘illiquid’ assets, including private equity and venture capital that tend to outperform public markets.

The largest obstacle for DC schemes accessing private equity and venture capital (PE/VC) funds is the calculation method for the 0.75% charge cap. This currently treats profit-sharing models such as carried interest as a performance fee and includes them in the cap (unlike other countries such as Israel). Whilst we understand the rationale for the cap, it is also a key barrier. It does not accommodate long-term incentive models such as carried interest that benefit both investors’ returns and the growth trajectory of the companies the industry invests in.

We have called for the cap to be lifted before. In our report Unlocking Growth, Sam Dumitriu says

“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.”

There are reasons to keep fees low. Pensions are difficult for people to understand, and often they will just accept whichever pension their employer enrolls them in. We don’t want people to be taken advantage of by having their retirement in the hands of people who charge unjustified high fees.

As part of these reforms, the Government is also going to implement new regulations which will challenge small defined contribution pension schemes to demonstrate that they offer value for their members. There are about 1,800 pension schemes which will come under this scope, with less than £100m in assets, and it will largely impact employers who run their own pension instead of choosing to join established pension funds.

If these measures manage to ensure that pension schemes are providing value for members, then that could provide the government and the people investing with the security they need to loosen the charge cap further.

One way to protect people from excessive fees would be to only increase the cap on carried interest. This means managed pension funds would still be restricted by the 0.75% charge as a management fee, but then they could charge a more standard 20% on the extra money they make.

That would lead to more money for private equity, intangible assets, and venture capital, which would mean more money for entrepreneurs, and a thriving startup ecosystem. For young people just starting to contribute to their pensions now, it may even mean about 7-12% more savings in their pension by the time they retire, as their money is put into more lucrative investments.

It’s a tough problem to crack but one which could help to make the UK a richer and more innovative place. Let’s hope the government can get this right. 

Female Founders Forum: Building a Team You Can Trust

On Wednesday we hosted a Female Founders Forum webinar on How to Build a Team You Can Trust. We discussed hiring, how to support your staff once you have them and how to create a positive and productive company culture.

Our panel included Vanessa Tierney, the founder of Abodoo and director of Yonderdesk.com; Karina Robinson, the co-director of The Inclusion Initiative at the LSE and the CEO of Robinson Hambro; and Louisa Chapple is the HR Director for Barclays Execution Services. These are their top tips.

1. Gather data. This is key for larger companies where you cannot speak to everyone. Barclays sends out a quarterly survey with the same questions in it, so they can track how their initiatives are impacting staff and work out what needs to be improved to enhance employee wellbeing.

2. Make sure you have a mission. Most people want to do something meaningful. If your company has a social purpose and a sense that it is making the world a better place, then staff will be more invested in what you do.

3. Overcome group-think. The most senior person should not be the first to speak in a meeting, because people will be apprehensive about disagreeing with them. Instead, when chairing a meeting, ask the most junior person what they think first.

4. Hire people with cognitive diversity. Good teams are more than the sum of their parts. People working together who think differently can create much better outcomes. One way of finding someone who thinks differently to the rest of your team is to hire people who used to work outside of your industry, but who have the right transferable skills.

5. Build an inclusive culture. This is not just because it is the right thing to do, but it is also helpful for your business so that you can understand your customers better.

6. Encourage people to speak up. People will assume that it is extraverts who will struggle the most with working from home, but Vanessa warned that you will not know if introverts are struggling because they may not speak up without being prompted.

7. Make sure quiet people are being offered opportunities. It is often the case that the people who are the loudest and the most proactive are given the tasks which lead to promotion. When giving out tasks, see if there is a more equitable way to distribute them to give more people a chance to prove themselves.

8. Offer people options. Companies like Google have announced that they want people to return to the office. Karina and Vanessa both believe that this offers a great opportunity to start ups. If you feel confident allowing your employees to work from home, then this could be a chance to hire someone from one of these big companies. You may not be able to offer them the same salary, but you can offer them more flexibility.

9. Support employee wellbeing. Barclays has a healthy habits campaign to make sure that their colleagues are taking care of themselves while working from home. They encourage them to exercise and spend quality time with their families.

10. Create ambassadors. If someone has a good experience working at your company, including a good experience leaving it, then you will have an ambassador for life.

11. Find a mentor. Karina says that the secret is not to ask someone “will you be my mentor” because they will say that they don’t have time. Instead, after choosing someone who you want to mentor you, ask them if they will meet you in five months and then ask them for another meeting five months after that. 

Pot Luck

The Treasury is planning to change the rules to allow pension pots worth billions of pounds to be invested in start-ups, infrastructure and green energy projects.

If successful it would allow a slice of the UK's £2.2trn pension funds to be invested through the Long Term Asset Fund (LTAF), which was announced in November, with the LTAF becoming a “default” investment option for savers when automatically enrolled.

We’ve long called for this sort of change, most explicitly in our influential Startup Manifesto which we produced with our good friends at Coadec. (We really need to go back through the list of the 21 policies we jointly called for to see which haven’t been adopted yet by the government – many have.)

In another piece of good news for funding, the latest Office of Tax Simplification (OTS) report has some recommendations to improve the administration of SEIS and EIS. As Sam Dumitriu writes on our blog, we advocated a range of reforms in our Unlocking Growth report with the Enterprise Trust to help these vital reliefs function better.

Among other things, the OTS recommends reducing the information requirements for SEIS raises, the requirement for share issuances the day funds are received, and correcting something as simple (and no doubt infuriating) as the fact that the long application forms can't be saved partway through.

While these sorts of processes and regulations might seem immutable, it’s always worth letting us and other business organisations know when these sorts of issues arise, as these things can be changed – though admittedly not always as quickly as entrepreneurs would like or deserve.

House Grown
Like most businesses, we’ve managed to grow with a lot of help from our friends. Whether that’s our Sponsors, Patrons, Advisers, Supporters or Research Advisers, a lot of people have put in a lot of time and a meaningful amount of money to make sure we're able to support entrepreneurs. Like 99% of entrepreneurship, we don’t survive by tooth and claw but through cooperation.

We are not for want of offers of help – a day rarely goes by when I don’t get an offer to partner on something or the other – but I’ve learned over the years to only agree when there really is an alignment of values.

One partnership that’s going from strength to strength is with FieldHouse Associates. Founder Cordelia Meacher is one of our Advisers and because of their extensive VC connections, we’re running a year-long series of virtual roundtable interviews whereby we speak with leading VCs via Zoom about key issues around investment. By “we”, I mean “you”, with entrepreneurs joining us to ask questions.

Next week we have Sharon Vosmek, CEO of Astia, which has to-date has invested over $27 million directly in female-led companies. In August, we will have Michaël Niddam, co-founder and Managing Director of Kamet Ventures to talk about the latest innovations, particularly in healthcare. And in September we will have Stephen Page, founder and CEO of SFC Capital to discuss the importance of supporting startup ecosystems.

Kicking Off
BEIS has got in touch to ask us to promote a couple of schemes regular readers will already know about, but might appreciate being reminded of.

Help to Grow is an executive training programme delivered by some of the UK’s leading business schools, providing senior leaders at SMEs across the country with support, training and mentoring. You can find out more here and watch a discussion with Business Secretary Kwasi Kwarteng covering it here, which includes three Members of our Female Founders Forum: Debbie Wosskow OBE, Marta Krupinska and Laura Tenison MBE. We’ve been broadly supportive of Help to Grow – particularly as it chimes with the findings of our Management Matters report.

BEIS also wants to make sure you know about the Kickstart scheme, whereby the government funds new jobs for 16-24 year olds on Universal Credit. After loads of people (including us) kicked off about it, you no longer need a minimum of 30 job placements to apply directly for a grant. Businesses may want to read DWP's new employer prospectus or attend one of their employer webinars.

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Simplifying EIS and SEIS

After their last report, there are few phrases entrepreneurs dread more than “Office of Tax Simplification release new report on capital gains tax.” But I suspect entrepreneurs may find a lot to agree with in the OTS’s latest report into simplifying practical, technical and administrative issues relating to capital gains tax.

Of particular interest are the recommendations to improve the administration of SEIS and EIS. It is an issue we have touched upon before. Advanced Assurance, a prerequisite for investment, is difficult to obtain from HMRC. Without professional advice, startups can get caught out by honest mistakes. Worse still, delays in the process can cause deals to fall through.

In our report, Unlocking Growth, we advocated a range of reforms to ensure the vital reliefs function properly.

The long waits could be better tolerated by SMEs if there was clear communication from HMRC on the application’s progress. Furthermore, HMRC should provide SMEs with clear feedback if an application for Advanced Assurance is rejected.

A number of measures could reduce delays and ensure more investment flows to innovative businesses. First, HMRC should work with investor organisations to produce pre-approved standard Articles of Association and Shareholders’ Agreements. Second, businesses using the pre-approved documentation could be fast-tracked. Third, if there was a mechanism to make corrections for ‘honest mistakes’ post-investment, it may enable lower-risk applicants to outsource the process to accredited advisors without fearing loss of relief due to filing paperwork incorrectly.

SEIS and EIS are significant tax breaks, so it is right that there are protections to prevent abuse and avoidance. But as the OTS quote one tax adviser, the rules can function like “elephant traps that seem more designed to help generate fees for advisers than to block misuse”.

There are few key changes the OTS proposes to make it easier for genuine entrepreneurs to access the relief.

First, under the status quo the application process is cumbersome and difficult to use. Some of the problems would be simple to fix. For instance, the OTS notes: “The application forms themselves are difficult to complete online as, although they can be completed on screen, there is no scope for saving partly completed forms.”

Less straightforward to fix, but clearly a problem is the fact that SEIS and EIS have similar information requirements, despite the former scheme being for businesses at an early-stage who are less able to afford professional advice.

Second, some modern commercial practices fall foul of the EIS regulations. We recently came across one innovative sharing economy start-up which had created a tech platform for parents to share and borrow children’s clothing. They were unable to access the relief as their business was considered to be a business that leased assets and therefore ‘low-risk’. However, the OTS is lighter on solutions here, noting:

“There is, however, a tension between what may appear to be restrictive requirements and the need to ensure that enterprise investment schemes are not being exploited”.

Third, a more tangible and easier to solve problem is excessive requirement for share issuances the day funds are received. The OTS point out that:

“shares in companies that qualify for enterprise investment schemes have to be issued when, or shortly after, any funds are received. If payment for the shares is even one day late, the whole investment is ineligible for tax relief.”

This can wreck deals and deter people from using the schemes – perhaps simply because of a timing delay within the banking system which is beyond investors’ control.” To resolve this problem, the report suggests a short grace period for start-ups.

Fourth, there are also problems with how the income tax and capital gains tax relief elements of EIS and SEIS function. Under the status quo, investors cannot utilise the scheme if they are unable to claim an income tax relief. However, this could happen because an investor has made a large income tax loss and has a negative income for the year. This is a problem because EIS and SEIS also provide capital gains tax relief.

To correct for this, the OTS suggest:

“The government ... explore whether Capital Gains Tax relief should still be accessible by the investor even when Income Tax relief has not been claimed. This would smooth out an odd outcome for taxpayers who have made Income Tax losses – which could be a particular issue in the current COVID-19 economic situation.” 

Some of the changes proposed may be administratively difficult, but they would all help a tax relief that since 1994 has helped to raise over £22bn worth of investment into high growth businesses to help more startups. Let’s hope HM Treasury takes them seriously.

Opportunity Knocks

Another week, another report to tell you about. This week we launched Knocking Down Barriers with Sage, which looks at how business creation can play a vital role in the post-pandemic economic recovery.

We focused specifically on some of the most deprived parts of London and Newcastle. While these areas are undoubtedly deprived in the technical way statisticians at the ONS use the term, they aren’t deprived of entrepreneurial potential. In fact, they are chock-full of inspiring individuals brimming with ideas.

On the back of extensive polling and focus groups by Portland, we found that nearly half of respondents could name an idea for a business or side-hustle unprompted. As I write for Forbes: “That means that just within the deprived communities we talked to there are 234,000 people with business ideas. Extrapolating this trend across the 10% most deprived communities in the UK means there are over a million people sitting on business ideas.”

But ambitions are being thwarted by a lack of confidence and finance. If the right support was in place to overcome these barriers then potential business owners would be, on average, 17% more likely to take the leap. This would translate to 38,000 more people working for themselves in the 12 deprived boroughs and wards we polled alone. If this impact were replicated across the most deprived 10% of communities in the UK, then it would mean 188,000 more people becoming their own bosses and finding more fulfilling work.

So what’s holding them back? Over 80% are held back by fears over administrative, tax and legal compliance. Lack of mentoring is a clear barrier too: 73% of SME leaders surveyed had access to a mentor and more than half sought their advice, but less than half of the 58% of people we polled who have someone to turn to had done so.

And 70% do not feel close to having enough money to start a business. In addition, only a third (34%) feel comfortable taking out a loan and half believe they would not be granted one if needed.

We have policy recommendations to address all of these issues, but the headline one is expanding the New Enterprise Allowance to £100 per week for up to a year, allowing recipients to access more of it upfront, and expanding the eligibility of the scheme to people who have been furloughed in the past 12 months and under 23 year olds earning less than the National Living Wage.

As author Sam Dumitriu explains in an article on the recommendation, the New Enterprise Allowance falls short of the original Enterprise Allowance Scheme (EAS), which had impressive results. Perhaps ironically, for a Thatcherite policy, the EAS helped launch the careers of Young British Artists (YBAs) such as Jeremy Deller and Tracey Emin, as well as Alan McGee’s Creation Records, comedian Alan Davis and Julian Dunkerton’s SuperDry clothing brand.

Sam asks (and answers) the question of what explains the relative failure. He finds a key problem is the level of support on offer: “The EAS offered recipients £40 a week in the 80s, which is slightly more than what they could get from Job Seekers Allowance (JSA). The NEA is a fair bit stingier: you can claim up to £1,274 over six months, roughly 25% less than what you would have got on JSA.”

“The support does not last for long either. At the end of six months, you are effectively on your own. This wasn’t the case for the original EAS, where support lasted for a year. There’s a further complication too. Under Universal Credit, benefits are gradually tapered away, which can create further uncertainty for the self-employed as to what they will have at the end of the month.”

It’s not the only policy idea in the report, so do check it out in full for more. Also, there’s a role for the private sector and charities to help. For example, off the back of the report Sage has announced a partnership with MyKindaFuture to provide training and mentorship via Jobcentre Plus to help disadvantaged and underrepresented groups to develop their business ideas.

The report was featured in The Times here (Paywall). You can read the full report here; read a shorter summary here; and read a Twitter thread here. Any retweets or shares on social media would be greatly appreciated.

Saints, scholars & innovators
Along the same lines, but a bit further from home, the Network For Teaching Entrepreneurship (NFTE) has reached out to ask for connections to entrepreneurs and innovators who are keen to share their insights and experience with the young people they work with in Ireland.

NFTE is a youth entrepreneurship programme that is targeted at young people aged between 10 and 18, but mostly around 15/16 year olds from disadvantaged communities. It is operated by the national youth organisation Foróige, and works with approximately 5,000 young people each year.

The insights could take the form of a short talk, or series of talks on different topics, a pre-recorded video, or access to educational or informational materials that might be useful to the young people starting their first businesses or developing their innovative ideas.

Please just get in touch with me if you want me to connect you with the NFTE. And please share this with any connections you have that might want to get involved. It sounds like a great initiative to me.

Sign up to Philip’s weekly newsletter here and join us for free here.

Building a Team You Can Trust

In a report last October for The Entrepreneurs Network, economist Dr Matt Clancy highlighted that: “Remote work does not have to be merely an emergency response, to be discarded when the pandemic subsides. For many industries, it can be the new normal.” The prescience of his thinking at the time continues to be played out in the media, as the case for remote work goes well beyond its use during the COVID-19 pandemic. Recent research from economics and other social sciences collectively makes a strong case for the viability of remote work for the long run. 

But, whilst workers will increasingly value the flexibility and social currency of remote working, technological and societal changes have made it increasingly easy for businesses and applicants to find each other, even when they are not physically close. Productive employees who are the right fit for the ethos of your company have never been more available, and in greater demand by you and your competitors.

Whilst there is no set formula for success, every entrepreneur’s business needs to be mindful of a number of variables. The new normal will increasingly create new questions and ingenious solutions. Business owners will face new challenges in how they create a diverse workforce, providing for meritocracy in promotion and colleague development. 

Furthermore, the past 18 months have seen many of us literally seeing inside the homes and lives of our teams. The blurring of home and work lives has created a new authenticity to how we operate our businesses. However, the support for team member welfare has never been more at the forefront and will be a crucial factor in the development of great and trusted teams. 

I’m sure that these will be key areas of conversation in our upcoming Female Founders Forum webinar entitled Building a Team You Can Trust. Our excellent panel will bring a diverse perspective backed by years of experience to a topic we know is right at the heart of resilience planning for outstanding female entrepreneurs.

Female Founders Forum: Building a Team You Can Trust
30 June 2021
10am to 11am
Complimentary
Sign Up
Hear from our expert speakers; Vanessa Tierney, founder of Abadoo and RemoteWork.Space and the director of Yonderdesk.com; Karina Robinson, co-director of The Inclusion Initiative at the London School of Economics; and Louisa Chapple, HR Director for Barclays Execution Services (BX).

How we can knock down the barriers to entrepreneurship in deprived communities

Knocking Down Barriers, our new report (in partnership with Sage and Portland) found that within deprived parts of the UK, there is a massive appetite to start a business. But their ambitions are held back by a range of barriers.

Some of the barriers are financial, while others come from attitudes, a lack of confidence and possessing the know-how to run a business from an administrative perspective.

Sometimes the concerns overlap. It is easier to take a risk when you are fortunate enough to have built up savings. If you’ve been unemployed recently, it’s understandable that you might not want to go months without an income before making that crucial first sale. Taking on debt through a startup loan is likely to seem daunting.

In the past, we stumbled upon a good way of supporting entrepreneurship for those without substantial savings - the Enterprise Allowance Scheme. Pay the unemployed to start their own business.

It is fair to say that is one of the few policies of Margaret Thatcher that is looked upon fondly from across the political spectrum. 

Yet, it’s descendant the New Enterprise Allowance has failed to replicate the success of the 80s era policy. In the 80s, 100,000 people were enrolled on the scheme at one time. By contrast, the NEA’s only seen 131,000 people enroll over the past decade.

The key problem is that while the original scheme paid more than Job Seekers Allowance, the new scheme is worth 25% less and only lasts for six months.

There’s evidence that a more generous approach represents value for money. The World Bank estimated that the old scheme cost about £5,000 in today’s money to create a new job. Few job creation schemes come close to this level of success.

So we suggest enhancing the NEA in a few key ways.

First, today’s payments are simply too low. We suggest doubling it to £100 per week. It’s also key that this money isn’t clawed back when they start earning a salary through UC.

Second, six months support is not enough. We propose moving back to a year’s worth of support.

Third, entrepreneurs need money the most in their first few weeks. So we propose allowing recipients to receive up to 50% of the last six months entitlement up-front in a lump sum on the condition that their mentor and work coach agree.

We also want to expand the eligibility of the scheme to include people who have been furloughed in the past 12 months and under 23 year olds earning less than the National Living Wage. 

This, we believe, would help many overcome the financial barrier. But that isn’t the only barrier. We also need to build confidence and expand access to advice. And this needs to happen at many levels.

We support the Government’s lifetime skills guarantee but many courses lack a real enterprise element. That’s a problem when self-employment and entrepreneurship will be a path that many choose to take. If we can demystify tasks, such as applying for finance, managing business taxes, and creating a company website, then it will build confidence and increase the likelihood that someone takes the initiative to start a business.

But formal education has its limits. We know that business owners, new and old, learn best from other business owners, who can draw from real-life experiences. That’s why the new Peer Networks programme for SMEs is exciting and has the potential to boost productivity.

But that scheme is only available for established businesses. So we propose trialling a Peer Networks style initiative aimed at new businesses. Pilot schemes could work with business support organisations, such as Enterprise Nation, and enterprise software providers, to develop a rounded mentorship programme designed to be scaled.

We also need to reduce the administrative burden on businesses and make it easier for business owners to navigate.

There are a range of models to pursue on this front, but one startling finding from the polling was that many would-be business owners from deprived backgrounds look to social media for advice and inspiration.

So we suggest that new courses and information should be marketed primarily through new media as this is a more effective way to reach deprived communities compared with LEPs or other business support organisations.

Government in general could be simpler if it used technology intelligents. Adopting the Once-Only Principle, the idea that businesses should only have to provide key information to the Government once. The aim should be to reduce administrative interactions to a minimum. 

We have got better at doing government online, and recent projects such as the GDS’ work on mapping out the journey of business owners through gov.uk are valuable. We believe they should be prioritised.

Eliminating these barriers will allow more people to take the leap into entrepreneurship. It is not for everyone and will be hard work, but for many people it represents the opportunity to find work that is not only higher paying, but also more fulfilling.

Your Honours

Despite the many hackneyed stereotypes in films and television, entrepreneurs, like most people, aren’t primarily driven by money. I think there are two better explanations.

First, most entrepreneurs genuinely want to make the world a better place. This manifests itself in many different ways – from a social entrepreneur supporting neglected people in a local community to a tech founder looking to revolutionise an entire industry. Both are people who see something in the world that they think could be done better, and instead of complaining or ignoring it, they try to fix it.

Second, entrepreneurs, like everyone, care about what people think about them. Admitting that we care about status is often seen as being a bit gauche. But I think that’s wrongheaded. We care about what others think about us because we want to be appreciated for what we do. The important thing is that we recognise and so incentivise people to do good, and have routes open to people to fulfill these ambitions no matter where they’re from.

Our focus is on entrepreneurs. This wasn’t a random choice. We do what we do because the role of entrepreneurship is critical to making everyone’s lives better. As we write in the ever-evolving Policy Priorities section of our website: “Entrepreneurial endeavours have taken humanity from subsistence to relative affluence and it is entrepreneurs who will raise the long-term living standards of future generations.”

The big question is therefore: how do we get more entrepreneurial innovation? On the one hand, we could focus on making it easier for current entrepreneurs to run and grow their business; on the other, we could focus on encouraging more people to want to become innovative entrepreneurs in the first place. We exist to do both.

When it comes to the latter, our Head of Innovation Dr Anton Howes and co-author Ned Donovan have a nifty idea. In Honours for Innovators, they make the case for establishing a new order of chivalry, specifically designed to encourage invention and raise the status of being an innovator in the eyes of the public.

They crunched the numbers and found that fewer than one in ten of the people recognised were honoured for services to science, innovation, technology, engineering, entrepreneurship, or even broader categories like business or industry in the established honours system.

We’re calling for a new Elizabethan Order to coincide with the Queen’s 2022 Platinum Jubilee. It would have equivalent ranks to the existing Order of the British Empire, with its own knights and dames. We even got a professional herald to design what the medals would look like.

We propose having 273 awards to reflect that -273.15 degrees Celsius is the figure for absolute zero, or 0 kelvins (Baron Kelvin was the first British scientist and inventor to be elevated to the House of Lords for his achievements). The entire order would cost less than the annual salary of a single MP, with the public able to nominate innovators and entrepreneurs, helping to elevate more role models for young people to emulate.

The report was featured in The Telegraph, but the best things to read are Anton’s overview here, and his background on the history here. Martin Vander Weyer of The Spectator also backed the idea, and so did Lord Bethell (a minister for innovation), John Penrose MP, Emma Jones CBE, Matt Clifford MBE, and Jess Butcher MBE.

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Honours for Innovators Coverage

This Monday we released a report on how we need to establish a new order of chivalry to encourage invention and raise the status of being an innovator.

From 2015 to 2020, fewer than one in ten appointments to the Order of the British Empire were made for services to “innovation”, “technology”, “entrepreneurship”, “engineering”, “science”, “medicine”, “manufacturing”, or broader related terms such as “industry” and “business”. 

To remedy this Anton Howes and Ned Donovan called for a new Elizabethan Order to be established, which would closely resemble the existing Order of the British Empire in structure, and would honour 273 individuals each year for their contributions to innovation.

Anton wrote more about the idea in CapX.

Scientists and innovators are remarkably under-recognised considering how much of our daily life, and the material progress we make each year, depends upon them. From increasing sustainability, reducing waste, and finding new treatments for disease, to making food taste better, industries more efficient, and services run smoother, we owe a lot to the people often quietly experimenting away in laboratories and workshops, behind computer screens or in kitchens or makerspaces, or even just tinkering with machines and circuit boards in the garage or garden shed. Unlike the sportspeople, actors, musicians, authors, and politicians to whom we give so many extra accolades, there is rarely any fame or glory to be had. And while a few entrepreneurs might get rich off their innovations, the great majority of them don’t.

Which is why we need a new order of chivalry: one specifically aimed at honouring people for their inventions, scientific discoveries, and technological advancements, to function in parallel with the Order of the British Empire recognising public service and charity.

And also his history newsletter, which explores the causes of Britain’s success in accelerating innovation and invention through the seventeenth and eighteenth centuries. Anton said that inventors in Britain were very good at raising the social status of becoming an inventor. The idea for giving honours to innovators is not without precedent, and the newsletter talks about the The Royal Geulphic Order, which existed for a while in the UK before Queen Victoria.

This idea has captured the imaginations of lots of people. Martin Vander Weyer praised the idea in the Spectator this week;

My sympathy is also caught by a plea from the Entrepreneurs Network think-tank for a new ‘Elizabethan Order’ of chivalry that would salute another shunned category: the innovators, especially in technology, who received ‘fewer than one in ten’ honours awarded over the past five years and were ever scarcer in the recent birthday roll-call, a rare exception being a CBE for Julie Deane, founder of the stylish but relatively low-tech Cambridge Satchel Company.

The idea was also covered in Startups Magazine and the Telegraph

Good to see @antonhowes and @Ned_Donovan’s @TenThinkTank proposal of an “Elizabethan Order” to recognise inventors and innovators covered in today’s @Telegraph. Thanks @JamesLiamCook. Check out the full paper here https://t.co/1JXloRrwGZ pic.twitter.com/mkjMxTXg8w

— FieldHouse (@WeAreFieldHouse) June 14, 2021

Many voiced their support on Twitter, including Lord Bethell, the minister for innovation in the Department of Health and Social Care.

RECOMMENDED: we need more innovators! Yes! Characteristically creative provocation from @antonhowes @Ned_Donovan @ @reactionlife. https://t.co/w9OQQFVxHA

— Lord Bethell (@JimBethell) June 14, 2021

And Onward’s Ted Christie-Miller

Love this idea from @Ned_Donovan and @antonhowes 👇 https://t.co/6Pt9m1zpx3

— Ted Christie-Miller (@tedcmiller) June 14, 2021

And Emergent Venture’s Matt Clancy

Out of the box innovation policy (at least to this yank): @antonhowes and @Ned_Donovan have a proposal to raise the social status of innovation with a new order of chivalry https://t.co/ntCCQfc552

— Matt Clancy (@mattsclancy) June 14, 2021

There were some who saw this idea and said they wanted something similar in their own countries too.

Australia needs this too https://t.co/GsJ2mg6Di5

— AWebling (@AWebling) June 14, 2021

Nigeria needs this...so does the rest of Africa https://t.co/kuOWQmRYfQ

— emeka_okafor (@emeka_okafor) June 14, 2021

This is great.

We need to do much more in the US as well. @potus should be singing the praises of every scientific and academic advancement. Inviting Highschool valedictorians to the Whitehouse. Spending time making studying sexy. https://t.co/8hvFF1WwUQ

— Julien Lafleur (@julien_lafleur) June 14, 2021

The paper was endorsed by Matt Clifford MBE, co-founder and Chief Executive of Entrepreneur First, an entrepreneurship programme that helps founders build teams and businesses around their ideas and provides seed investment, who said:

“We know that everyone benefits when the most talented members of society apply their abilities to innovation. Raising the status and prestige of innovators is one of the most important ways to encourage invention, so I strongly endorse the idea of a new chivalric order. It could have a disproportionately positive impact relative to its cost."

Jess Butcher MBE, serial technology entrepreneur, angel investor, and Government advisor, added:

“The ‘Elizabethan Order' is a fantastic initiative to highlight and reward the very specific contributions made by those individuals inventing the future. There is so much innovation of global importance coming out of the UK, and it is imperative to better recognise the contributions made - not only to celebrate their success, but to encourage future pioneers.” 

John Penrose, MP for Weston, Worle, and The Villages, the Prime Minister’s Anti-Corruption Champion, and Chair of Conservative Policy Forum, also endorsed the idea, saying:

“Britain has always been better at recognising the achievements of people who rise to the top of established professions and industries, rather than the innovators who create new ones. But, ultimately, the power of ideas is what drives the technologies that create new jobs and economic growth, and that fuel our society and culture too. This is a creative and interesting idea to redress that balance.”

Emma Jones CBE, founder of Enterprise Nation, said

“In view of the contribution they make to the economy and society, it would be wonderful to see innovators and entrepreneurs recognised in the way outlined in this proposal of The Elizabethan Order. Innovators set out to solve problems and stretch the art of what is possible and entrepreneurs do the same. Their efforts deliver results in the form of civil advancement, trade opportunities, and global partnerships. They do not do this work to be honoured but to honour them in this way would represent the ultimate recognition of their passion and toil”

Call for honours system revamp to boost public engagement with invention and innovation

MPs and entrepreneurs back proposal for new “Elizabethan Order” to recognise achievements in science and technology

London, Monday 14 June - The UK needs a new order of chivalry specifically to recognise invention and innovation and elevate the status of entrepreneurship, science, and technology in the eyes of the public, according to think tank The Entrepreneurs Network. The proposal - outlined in a new report, Honours for Innovators, and supported by MPs and leading figures from the UK entrepreneurship and technology community - would see the “Elizabethan Order” honour up to 273 individuals each year for their achievements and contribution to innovation. The first awards would ideally be made in 2022 as part of the national celebrations to mark Her Majesty The Queen’s Platinum Jubilee. 

The report reveals that between 2015 and 2020 fewer than one in ten appointments (9.2 per cent) to the Order of the British Empire through the Queen’s New Years and Birthday honours lists were made for services to “innovation”, “technology”, “entrepreneurship”, “engineering”, “science”, “medicine”, “manufacturing”, or broader related terms such as “industry” and “business” - falling to just 6.7 per cent if “business” is excluded. Even when terms relating to invention and innovation were included in honours citations, it was often in the context of recognising philanthropic, charitable, or political activities and achievements, rather than invention and innovation itself.

The proposed new order would address this failure to give due recognition to inventors and innovators, said Dr Anton Howes, an author and historian of invention, who co-authored the report: “The UK has a rich history of recognising innovators, going back to the honorary medals and cash prizes awarded by the RSA, honours bestowed personally by monarch, now-defunct orders such as the Royal Guelphic, and the erection of statues and blue plaques to notable inventors and scientists. But we have taken backward steps since the Victorian Era, and no current dedicated awards have anything like the status and public profile of the Order of the British Empire, which often favours achievements in sport, the arts, and public life - activities that usually come with fame and prestige anyway. So it’s a shame to see entrepreneurs, inventors, and innovators so marginalised on the honours lists - we can correct this with a new order given equal billing.”

The Elizabethan Order - named in recognition both of the flourishing of science and innovation during the reign of Elizabeth I and of the second Elizabethan Age under the present Queen - would closely resemble the existing Order of the British Empire in its structure. Honourees would be designated Member (ME), Officer (OE), Commander (CE), or Knight (KE) of the Elizabethan Order, with Knights to be referred to as Sir or Dame. There would be up to 273 honourees each year - a reference to -273.15 degrees Celsius being the figure of absolute zero on the kelvin scale, Baron Kelvin having been the first scientist and inventor to be appointed to the House of Lords. Innovation and invention were also notable passions of the late Duke of Edinburgh, which would also allow the awards to recognise the contributions made throughout his lifetime.

The proposal has been received positively by leading figures in the UK innovation ecosystem. Matt Clifford MBE, co-founder and Chief Executive of Entrepreneur First, an entrepreneurship programme that helps founders build teams and businesses around their ideas and provides seed investment, said: “We know that everyone benefits when the most talented members of society apply their abilities to innovation. Raising the status and prestige of innovators is one of the most important ways to encourage invention, so I strongly endorse the idea of a new chivalric order. It could have a disproportionately positive impact relative to its cost."

Jess Butcher MBE, serial technology entrepreneur, angel investor, and Government advisor, added: “The ‘Elizabethan Order' is a fantastic initiative to highlight and reward the very specific contributions made by those individuals inventing the future. There is so much innovation of global importance coming out of the UK, and it is imperative to better recognise the contributions made - not only to celebrate their success, but to encourage future pioneers.” 

John Penrose, MP for Weston, Worle, and The Villages, the Prime Minister’s Anti-Corruption Champion, and Chair of Conservative Policy Forum, also endorsed the idea, saying: “Britain has always been better at recognising the achievements of people who rise to the top of established professions and industries, rather than the innovators who create new ones. But, ultimately, the power of ideas is what drives the technologies that create new jobs and economic growth, and that fuel our society and culture too. This is a creative and interesting idea to redress that balance.”

Emma Jones CBE, founder of Enterprise Nation, said “In view of the contribution they make to the economy and society, it would be wonderful to see innovators and entrepreneurs recognised in the way outlined in this proposal of The Elizabethan Order. Innovators set out to solve problems and stretch the art of what is possible and entrepreneurs do the same. Their efforts deliver results in the form of civil advancement, trade opportunities, and global partnerships. They do not do this work to be honoured but to honour them in this way would represent the ultimate recognition of their passion and toil”

The Entrepreneurs Network asked John Petrie OBE, who has designed national honours and decorations for several Commonwealth countries, to visualise insignia and medals of the Elizabethan Order. The choice of an owl references Athena, the ancient Greek goddess of wisdom, who is frequently associated with science and invention, and the motto “Merito et Industria” - “achievement and industry” - emphasises the virtues that the honour rewards.

The cost of implementing the proposal would be low, said report co-author Ned Donovan: “Including an up-front cost in the region of £15,000 to £20,000 for the preparation of dies, ribbon designs, and other elements of setup - and assuming a distribution of awards across the different classes that mirrors that of the existing honours system - the annual cost of insignia for appointees to the Elizabethan Order would be just £66,000, less than the annual salary of a single MP. The return in terms of increased public awareness and inspiration would easily be many times that. And we have the infrastructure to decide on appointments, with committees already in place to review public nominations for the Order of the British Empire in the fields of science and technology, health, and business and the economy, that could take on the role.”

-ENDS-

About the report

• Note on Methodology - Figures relating to the proportion of Order of the British Empire awards given to inventors and innovators exclude the 2020 Queen’s Birthday honours list and the 2021 New Year’s and Queen’s Birthday lists, the compositions of which were significantly skewed by moves to recognise contributions to the fight against Covid-19. Discounting these lists provides a more representative picture of the long-term trends in the awarding of honours.

• Download - The full report, Honours For Innovators, is available to read and download here.

About the authors

• Dr Anton Howes is a historian of invention, and head of innovation research at The Entrepreneurs Network.

• Ned Donovan is a writer and former national newspaper journalist, having worked as a news reporter and foreign correspondent. He is also a member of the Orders and Medals Research Society.

About The Entrepreneurs Network

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

Championing Europe

Last week The Economist led with a story that has got a lot of attention. Describing Europe as “a corporate also-ran”, the magazine asked: can it recover its footing?

The headline stats don’t make for pretty reading. In 2000, nearly a third of the combined value of the world’s 1,000 biggest listed firms were in Europe, as were a quarter of their profits. Since then, those figures have halved. In 2000, 41 of the world’s 100 most valuable companies were based in Europe – which includes Britain and Switzerland – today there are only 15. Apple alone is worth more than the 30 firms in the German blue-chip DAX index combined, and close to the value of all 40 companies in France’s CAC index. I won’t go on.

It’s a theme Tim Wallace also covers in an article for the Telegraph on ‘how Brussels’ complacency turned Europe into a corporate wasteland’. In it, he quotes our Senior Researcher Aria Babu and Adviser Sam Bowman.

The numbers don’t lie. But while I agree with the both articles, I think there are reasons for optimism.

In response to The Economist’s article, Patrick Collison, founder of Stripe, rebutted with a letter in defence of European optimism: “Europe’s tech sector is worth four times what it was just 5 years ago. Europe now attracts 15% of global venture capital, up from 4% in 2014.”

Things can get better too. Collison cites a lot of low-hanging fruit for policymakers, including streamlining the common market, fewer silly regulations (like website cookie banners), better legal treatment of stock options, and easier access to talent. For our part, we could add dozens more ideas to Collison's list.

So, while we can lament the decline of Europe’s corporate behemoths, the next generation is sitting pretty. UK and EU policymakers just need to go out for a spot of fruit picking. Is that really such a stretch?

Status game
On Monday, we’ll release a report from our Head of Innovation Research Dr Anton Howes and Ned Donovan. I don’t want to break our own embargo, but it’s on what we hope will be a popular upstream policy to make innovation, invention and entrepreneurship more aspirational – something that Anton has written about in his award-winning Age of Invention newsletter.

Members of The Entrepreneurs Network will get an email on Monday with a link to the report. It’s free to become a Member. You just need to fill in a form that lets us know what you’re interested in. With such a large and growing network, we’re increasingly just targeting Members in the first instance for events, so I would recommend signing up. You can do so here.

Just a minute
Talking of upstream policies, Nacue’s and Tata's annual varsity pitch has opened up. It’s for anyone currently studying, as well as those who’ve graduated since 2016. There is a prize pot of potentially £15,000 of equity free cash to win. The application only requires a 60 second video pitch and there is even a category for those who only have an idea. Make sure to alert any young people who you think might be interested, as may just be the spark to inspire the next great entrepreneur. Find out more here (more established entrepreneurs may want to scroll down to get details of The Barclays Entrepreneur Awards 2021).

Absolutist Unit

In the first of a flurry of new reports, yesterday we released a new paper with the International Centre for Law and Economics, arguing that the Competition and Markets Authority’s new Digital Markets Unit (DMU) risks chilling investment in UK startups and undermining competition.

While the new regulatory powers are aimed at the likes of Google and Facebook, we’ve heard from lots of tech entrepreneurs and investors concerned that by creating huge uncertainty around mergers and acquisitions, the new regime would cut off a potential exit for many startups. Just yesterday, an early-stage VC told me that making an IPO effectively the only possible exit for them would result in them passing on otherwise investable businesses.

As my colleague Sam Dumitriu writes in City AM: “Under the new regime, any deal involving a regulated company with a ‘greater than fanciful’ chance of reducing competition would be blocked, even if the CMA thought it would, on balance, increase competition. Entrepreneurs should be worried about this: attracting VC investment will be much harder if exit-by-acquisitions is taken off the table or made more difficult.”

As its remit expands, the DMU is likely to become a super-regulator. Sam Bowman, another of the report's authors, writes for CapX: “In a few years, the idea that there is such a thing as a distinct ‘digital market’ will be as meaningless as referring to a ‘market that relies on the roads’. Everything will be a ‘digital market’, and every firm that succeeds in these markets could fall under the control of the DMU.”

There is growing concern in Parliament too. John Penrose MP, author of the Penrose Review of Competition Policy, who wrote the foreword for our report said: “The DMU under its current proposed set-up risks becoming a bloated and unwieldy regulator which could be seized by vested interests and hold back innovation through over burdensome regulations. The government should be wary of this. We want post-Brexit and post-pandemic Britain to be the best place in the world to start a business. The DMU jeopardises this aim. We should not risk leaving the UK less competitive and with less successful companies, exports and jobs – making us a poorer country in the long-run.”

I recommend reading the report and articles linked to above for details of the wider concerns about the regulatory changes. We’re also hosting a virtual roundtable discussion on this topic with the DMU on Wednesday at 2pm. Just let me know if you’re keen to attend (as well as little about why).

James Croft
Over the bank holiday I learned the sad news that James Croft had sadly passed away. Most recently in his role as co-founder of Whitebeam Strategy, James wrote our Education Entrepreneurship Monthly newsletter, and a few years ago worked with us on the Business Stay-Up campaign with ABE.

I first got to know James when he set up the Centre for the Study of Market Reform of Education (CMRE), which later became Centre for Education Economics (CfEE). He was always incredibly modest about what he achieved, but for my money he was producing the best research on education policy of any think tank.

James delivered solid research because he was extremely thoughtful and a genuine seeker of the truth. He was also assiduous in everything he wrote and edited, and allowed others to flourish by giving them the freedom and funds to write.

But, first and foremost, James was an incredibly kind and generous man. He always had time for a chat and always looked for the good in others. While we only really saw each other when working on projects or at events, it’s proof that friendships can be made and strengthened through work.

Other people who knew him shared their thoughts – all of which are testament to his good character. Here are just a few:

– Dame Rachel de Souza: “So sad to hear this. James was a lovely man and will be sorely missed. Thoughts with his family.”

– Dr Nicholas Capstick, OBE: “An amazing man with an amazingly agile brain and such a gentle persona.”

– Sam Bowman: “Really sad news that James Croft has died. He was kind, intelligent and did great work in education policy. I'm really glad to have known him and been able to work with him.”

– Ryan Shorthouse: “A great loss. A lovely, thoughtful man.”

Our thoughts are with his family. He will be missed.

New tech regulator is threat to startups and online competition

A new report from The Entrepreneurs Network and the International Centre for Law and Economics argues that the Competition and Markets Authority’s new Digital Markets Unit may chill investment in UK startups and undermine the competition faced by Big Tech companies like Google and Facebook.

• The new tech regulator would put in place a de facto ban on acquisitions by tech platforms, severely limiting investment in startups and damaging the UK’s entrepreneurial ecosystem.

• Businesses like Google and Facebook would be forced to prove that product changes benefit consumers before they could introduce them, creating a new micromanaging bureaucracy ill-suited for fast-moving digital markets. 

• The regulator lacks clear aims and objectives. It has a wide range of goals including “fair trading”, “open choices”, and “trust and transparency”, but is unclear how it will rule on issues where these goals are in tension with each other or with the CMA’s competition mandate. 

• All markets are digital to some extent, and the regular could grow into an economy-wide super regulator with little democratic oversight, and few checks and balances, over its power unless strong limits are imposed.

The competition enforcer’s new regulator for Big Tech risks damaging competition and innovation in the UK, argues a report from The Entrepreneurs Network and the  International Center for Law and Economics (ICLE). The report argues that by limiting acquisitions, and implementing a series of burdensome regulations around product changes, the regulator will decrease the amount of funding going to startups, and hurt Big Tech firms’ attempts to compete with each other. Furthermore, without a proper appeals process or a clear remit, the regulator threatens to become an economy-wide super-regulator with unpredictable rules and little democratic oversight.

This new regulator, the Digital Markets Unit (DMU), has been set up by the UK’s competition enforcer, the CMA, and is intended to regulate the conduct of tech giants deemed as having “Strategic Market Status” (SMS) in some online markets. So far Google and Facebook have been proposed as firms to be regulated in this way, but it is likely that others like Amazon, Apple, Uber and some payments companies will be added in future. 

Instead of driving competition in these companies’ markets, which is the CMA’s statutory focus, the report argues that the CMA is moving to a model of static regulation that will make it harder to displace these companies, setting out Codes of Conduct that govern their behaviour.

The CMA is also proposing to lower the burden of proof required to intervene in mergers and acquisitions done by Big Tech firms to a new standard which will effectively ban them from acquiring smaller companies. Under the proposed regime, all deals where there is a “greater than fanciful” chance of significantly lowering competition will be blocked. This would be the case even if the deal is, on balance, deemed to be more likely than not to benefit consumers and competition.

British startups will, as a result, find it harder to attract VC investment as this proposed de facto ban on acquisitions by Big Tech companies would remove a key way entrepreneurs can exit their companies. This may drive startups to go overseas to jurisdictions like the United States, where it is easier to be acquired.

There is also a risk that the DMU damages competition between platforms. Some of the most intense competition online occurs in markets like cloud computing and video streaming, where established Big Tech companies compete with each other in these new markets. Companies would also find it harder to change and improve their products, and would require approval from the regulator before they could do so, hurting users and slowing down innovation. 

Over time, the report highlights the danger of the DMU growing into an economy-wide super-regulator without that being the government’s intention. All markets are digital to some extent, and many including groceries, taxis, retail, entertainment and others may someday fall within the DMU’s remit, along with many others. The CMA’s proposals may end up creating a much more powerful and sprawling entity than it or the government realises, without being designed with the checks and balances that such an entity would require to succeed.

The report argues that many of the problems with the DMU are inherent to its design, and cannot be avoided in its current form. However, it suggests some changes that could reduce the risks present in the current DMU proposals, including giving the DMU an unambiguous competition mandate, limiting its scope to avoid regulating the conduct of the entire businesses deemed to have strategic status, and including sunset clauses in all its interventions. 

The report concludes that the effects of the CMA’s proposals on the wider economy have gone largely unnoticed, and that there is a risk of inadvertently creating a powerful new regulator that weakens competition in digital markets and makes British consumers worse off, and that now is the time for the government to critically review these proposals before it is too late. 

John Penrose, Conservative MP for Weston-super-Mare and author of the Penrose Review of Competition Policy:

“The DMU under its current proposed set-up risks becoming a bloated and unwieldy regulator which could be seized by vested interests and hold back innovation through over burdensome regulations. The government should be wary of this. We want post-Brexit and post-pandemic Britain to be the best place in the world to start a business. The DMU jeopardises this aim. We should not risk leaving the UK less competitive and with less successful companies, exports and jobs - making us a poorer country in the long-run.”

Sam Bowman, Director of Competition Policy at the International Center for Law and Economics, and one of the paper’s authors, said:

“There is a huge danger that the Digital Markets Unit proposals end up making digital markets more sclerotic and less competitive. The kind of regulation the CMA is proposing is about “managing monopoly” - the sort of approach that we use in the energy and water markets that basically surrenders the possibility that anybody except Google and Facebook can offer great Search and Social products. That doesn’t fit with reality, where new entrants like TikTok are nipping at the heels of these firms, and it misunderstands that much of the competition faced by Big Tech will be from other Big Tech companies – like if Apple decides to build a search engine to compete with Google’s. 

“We shouldn’t give up on competition online. Instead of trying to regulate incumbents, with all the costs to innovation and dynamism that entails, we should be trying to support new entrants as much as possible. Unfortunately, although it uses the language of competition, that isn’t what the CMA is proposing.”

Sam Dumitriu, Research Director at The Entrepreneurs Network and one of the papers authors, said:

“If we’re not careful the DMU could make the UK a much less attractive place for innovators and entrepreneurs. Tough rules on acquisitions will make it harder for startups to get investment from VCs and make founding a start-up substantially riskier.

While forcing platforms to seek approval for product changes flies in the face of the principle of permissionless innovation, which has driven the growth of the digital economy.

Our best chance of success outside the European Union will come from adopting a radically pro-innovation approach. Unfortunately, we look content to copy the EU’s ambition to regulate businesses started elsewhere.”

-ENDS-

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

The Entrepreneurs Network

Aria Babu / aria@tenentrepreneurs.org / 07834 549299

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

The International Center for Law and Economics promotes the use of law & economics methodologies to inform public policy debates.