Labour has launched a review of business startup funding, with an aim to make Britain ‘the best place in the world to start and grow a business’. This sentiment has been echoed by Chancellor, Rishi Sunak, who has unveiled a £250m loan scheme for high-growth firms called the Future Fund alongside other initiatives and government reviews designed to encourage investment in the UK. The review will examine the access to long-term finance for new companies, the incentives for growing businesses in the UK, the role of universities, and how to boost diversity among British founders and entrepreneurs – in an attempt to rival the growth of digitalisation in the US. Research from the largest bilateral investment bank between the UK and India, JPIN, exhibits that over a quarter of the UK workforce state that specifically a lack of tech capabilities within companies is hindering their growth opportunities.
Amidst trends of high-growth tech firms listing their shares in New York rather than London, Labour’s motivations demonstrate the urgency to re-cement Britain as the leading global startup hub. In a world where tech growth plays a vital role in a country’s development, startups are set to serve as a lifeline for Britain’s economic prosperity.
Catalysed by the effects of rising inflation, trade tensions and a looming economic recession, the current SME landscape is facing its own implications of “stagflation” with worldwide VC confidence and funding taking a subsequent hit. As a result, a widening funding gap is emerging at speed, blighting the prospects of the private sector’s scale-up trajectory. Deriving from the constraints around institutional funding – given the current economic climate – Labour’s mission is to build a steady, institutional ecosystem offering the market access, finance and skills that new and growing businesses need. More importantly, their priority will be to ensure that any future obstacles preventing startups from scaling up, will be negated.
Other routes of investment have risen to prominence in the past decade, alleviating the pressures of startup funding. Institutional investors such as banks, labour unions, insurance companies and pensions, require a longer and more protected due diligence process, which results in greater thresholds for longer investment hold times. Given the general economic uncertainty, family offices are likely to help aid the current market conditions by stepping in with a potentially attractive pool of capital for funds and private deals. With a staggering 42% of family offices – according to research – worldwide looking to increase direct private equity allocations, the shift to the deep-pocketed investors from private wealth vehicles is set to prevent VC confidence from declining even further – providing an alternative route to boost investment for startups across Britain.
Gaurav Singh, founder of JPIN, comments:
“Labour’s review into business funding to support startups is welcome news, as it highlights the importance of innovation in providing building blocks for the future of the UK economy. It’s great to hear especially given the challenging landscape that’s begun to emerge in the last few months.
“New and growing businesses primarily struggle with receiving funding; however, there are now various options that can help with boosting capital. It appears family offices could also come to the fore to fill investment gaps in the market at a time when valuations are dropping and confidence from some institutional investors is decreasing. This increased activity from a different branch of the investment sphere could provide startups with an injection of much-needed capital which will also help to stimulate the economy during these uncertain times.
“Startups are ultimately crucial to the economy, as countries need tech innovation to stimulate growth. One of the real worries is the current obstacles preventing new businesses from flourishing and I suspect I that a mixture between institutional and private funding could assist with boosting economies across the world over the next year.”