Stephen Kelly, recently appointed the Chair of Tech Nation shares his insights on the Business Loan Scheme statistics
In recent months the UK government has made one of the great strategic investments. Arguably by accident as a response to extraordinary events. As the Treasury begins work on tackling the looming corporate debt crisis, it only needs to look as far as the Future Fund and its offer of matched funding, that if not repaid will convert into a share of the business, to find the solution.
Intended as an emergency shoring up, this measure could actually be a longer term masterstroke, and to make the most of this the Government should commit to businesses for the long term to support growth.
Clearly these are extraordinary times, and as such, call for some quite unprecedented measures that we may have never considered before; but our global competitors have been making similar investments for decades. Without heavy state backing, many Chinese technology businesses would have failed years ago. Boston Consulting Group’s 2019 report on tech investment found that China is the biggest driver of deep technology investment growth globally, with funding increasing at an annual rate of more than 80% from 2015 to 2018. Much of this investment is state backed. With a subdued domestic market, that investment was vital, but China has increasingly recognised the geopolitical opportunism and started to reach across borders. Take India as an example, where at the last count some 92 start-ups are funded by China-backed investments. China-backed firms now own majority stakes in nearly two-thirds of India’s known unicorn businesses.
The Indian trade ministry has had to respond, creating new federal rules to ensure that investments from bordering countries require government approval before going ahead. Some countries have gone further. In both Australia and France, FDI investment thresholds have been lowered.
The UK is responding too. Both the new National Security Investment Bill and the strategic folding of our overseas aid into the Foreign Office, show the Government grasping the mettle. Just as our FDI abroad may now be more strategic, perhaps we should also seek our own ‘FDI acceptability threshold’ to determine the maximum investment in a given UK sector or company. Investment in innovative UK businesses must be welcomed, but if the nation is at risk of ceding control of strategically important companies, the Government would require additional assurances, or otherwise block the transaction. It’s a fine line to toe.
This circles us back to the Future Fund, a crucial way of protecting our ideas by investing in them ourselves, thereby de-risking other foreign investment they might be receiving. The most recent extension of the Fund to include companies that significantly contribute to UK jobs and taxes, but which are foreign-owned, is therefore a logical extension.
Such Government intervention in the private sector is anathema to many, I understand that. The reality is that free-market economies are wonderfully productive and resilient when they co-exist together. Rub them up against overseas state-sponsored mercantilism, the picture can change very fast.
Rather than seeking to get the government out of the private sector as quickly as possible we need to look at it the other way. It could be in our national interest that they remain a long term partner and shareholder. Founders shouldn’t feel under pressure to pay back these loans in an arbitrary time frame. If they are, they risk making business decisions for the short term, not the long, and that will stunt the growth they could achieve. One of the structural problems in the UK is that, once at a certain size, businesses look to exit, often ceding their IP to foreign competitors. This is in stark contrast to the successful US mindset of long-term growth and global market leadership. It’s vital that UK businesses are allowed to grow and mature in their own time.
With a domestic agenda of levelling up, Government too will be mindful of the leverage now at its disposal as it pushes for growth. In 2019, 81.2% of UK tech investment went into high growth potential scale-up firms and the top 30 foreign funded tech companies in the UK created more than 5000 jobs. Before the corona crisis, the tech sector was growing at six times faster than the overall economy. By 2030, it is predicted that 50% of the economy will be tech, digital and creative industries. We’re already tracking over 2000 more scaling digital tech companies, many of which will be the unicorns of the future.
I don’t believe the Treasury started out with the intention of a new form of public private sector partnership but having committed the cash, the Treasury’s real imperative here should be to allow businesses to prospect, grow and mature. As such, they must be unequivocal in their role as a passive shareholder, allowing businesses to make the right strategic decisions for longer term growth.
At a recent LockDown conference held by Tech Nation, some 80% of the hundreds strong audience of tech founders and funders believed Covid-19 would bring a more active role for the Government in the sector. Financially that is the new reality. Strategically, we must be open for it to be for the long term.
Stephen Kelly bio
Ex-Sage and Microfocus CEO Stephen Kelly is unique as a CEO who grew NASDAQ, FTSE100 and FTSE250 companies. He has held multiple non-exec directorships and is an early stage investor in over a dozen startups. Stephen has held Government positions, as Chief Operating Officer and the Prime Minister’s Business Ambassador. Stephen was announced as Chair of Tech Nation on 31st May 2020.