The Keith Arundale Website

The government backed programmes of the British Business Bank (set up by the Conservatives in 2014) have provided much needed start-up loans for companies and through British Patient Capital, a subsidiary of BBB, with its $2.5bn of funding provides finance for venture and growth capital funds in the UK. BPC comes in where the pension funds fear to tread. The Mansion House Compact from 2023 could unlock an additional £75bn for high growth businesses from defined contribution and local government pensions, supporting the Prime Minister’s priority of growing the economy whilst delivering tangible benefits to pensions savers. Pension schemes have been reluctant to support VC funds due to the historic poorer performance of VC compared to the better performing buyout funds in UK and VC in the US though differences in performance between UK / Europe and US have now largely disappeared. Where the US still excels is with its outlier returns of say more than 50% per annum. In my recent research into the historic performance difference between UK / European and US VC funds and their underlying investment practices (Arundale, K., 2019. Venture capital performance: A comparative study of investment practices in Europe and the USA. Routledge) no UK or continental European firms in my sample had funds with outlier returns. The outlier performance of 9 US VC funds was due to the outstanding performance of one or two investments in the fund which provide the stellar return for the fund as a whole. It is the risk taking of US VCs and their outlier, home-run investments with large IPOs such as Google, Facebook and eBay that leads to US VC outperformance.

The Mansion House Reforms are evidence of the government encouraging more risk taking by investors with the benefit to accrue to high growth, VC backed companies receiving funding to scale up and pensioners benefiting from the better returns that come with the risk / reward equation.

So what else might we want from government no matter which party succeeds in the forthcoming General Election:

• More late stage finance for companies to scale up and not have to relocate to the US and their VCs with deep pockets. British Patient Capital is a good start. Let’s extend that.

• Continued support of the tax incentives for investment into high-growth enterprises such as VCTs (set up by John Major’s government in 1995), EIS (set up in 1994) and SEIS schemes and grants from Innovate UK. As announced in the Autumn Statement 2023, the sunset clauses in the EIS and VCT legislation have been extended to 6 April 2035 continuing the availability of Income Tax relief for investors in qualifying companies.  

• More government procurement for SMEs and high growth companies. Silicon Valley in the US have benefited enormously from procurement by DARPA (defense), NASA and other agencies.

• A more conducive and attractive stock market for technology stocks. We must make the London Stock Exchange No1 in Europe again and competitive with Nasdaq. The proposed forthcoming listings changes should help boost UK growth and competitiveness and put a stop to our stellar companies like ARM moving away from a UK listing.

• A cautious approach by Labour with their plans to amend the taxation of VC’s carried interest from the current capital gains basis to the more onerous income tax basis. We don’t want to see our star VCs abandoning the UK.

• Better collaboration and possible amalgamation of business angel networks to improve quality deal flow and attract more high net worth investors.

• More focus on support for those high growth companies that will increase employment (“companies with extraordinary potential”) with less emphasis on those SMEs that will never grow.

• Better interconnected tech ecosystems. Here in our Reading Tech Cluster the challenge is to create a joined-up approach. Tech companies, venture capitalists, local authorities, trade bodies, professional services firms, and the University of Reading with its academic and research excellence need to better connect with each other to share ideas, bounce off potential new initiatives (competition permitting) and work together to encourage continued growth in the region. Reading can learn from Silicon Valley which is supremely well interconnected among its various stakeholders, perhaps unlike anywhere else in the world.

Let’s make the most of opportunities afforded by the forthcoming General Election to put our tech ecosystems, like Reading, with their high growth entrepreneurial companies, firmly on the map.

See more on this post on the Henley Business School website: https://hly.ac/4b1PYGb