So you want to be a tech superpower? Put your money where your mouth is
Last week, the Government published a roadmap for reaching tech superpower status by 2030. At the heart of this strategy must be addressing the funding gap which is impeding innovative businesses from scaling up and growing.
Tech is an area where the UK already has so many competitive strengths not just in London but across the entire country. For example, London attracts more fintech investment than the next 13 European cities combined.
Other British cities are also major fintech hubs – there are over 135 fintech firms in Manchester and Leeds, and more than 200 in Scotland. The UK’s cyber security start-ups are worth £30bn – with over 2,000 businesses spread out across Britain.
Yet far too many of these innovative firms struggle, with funding being one of the biggest challenges they must confront. Research byScale Up Institute and Innovate Finance found that the UK’s growth capital gap was estimated at over £15bn.
The issue is start-ups in particular have limited access to traditional forms of capital, such as bank loans or venture capital, due to their size and lack of collateral.
Another barrier is navigating the regulatory environment. Often many lenders have strict requirements when it comes to approving loans, such as personal guarantees or collateral, which makes it tricky for firms that don’t have access to these resources. Whilst the perception that tech firms are “risky” investment makes it all the more difficult to secure financing from any source.
The risk to the tech eco-system has been prevented with HSBC’s rescue of Silicon Valley Bank UK. But creating a supportive environment for scaling up and improving access to finance so these businesses can grow is required here in the UK.
One of the key areas for opportunity will be on reforming pensions. A new report, by the City of London Corporation, shows how reforms to pensions rules across defined contribution schemes could unlock investment in tech and be a powerful catalyst for change.
The UK has the second largest pension fund pot in the world worth £4tn, but UK pension funds invest less than 7 per cent in private equity, real estate and infrastructure – with only 1 per cent invested in private equity.
This means the majority of UK pension funds and their scheme members are not benefitting from these high growth investment opportunities. In comparison, Australian and Canadian pension schemes are investing about 25 to 30 per cent in these asset classes. They have consistently delivered above-market returns for the last 30 years.
At the Spring Budget, the Chancellor looked at where pension funds weren’t working, especially where rules were preventing experienced, senior workers from staying in the workforce and adding invaluable insight to British companies. Jeremy Hunt has also promised to return later this year with more thorough proposals on how pension funds can support high-growth industries to start, stay and scale in the UK.
The City of London Corporation is calling on the industry to help create a new Future Growth Fund for the UK worth up to £50bn. This would provide a new source of investment into industries such as fintech, biotech, life sciences and green technology. One option for such a Fund could be that every Defined Contribution pension allocates 5 per cent of all contributions into the Fund giving millions of people a stake in it and helping to democratise returns.
The benefits of increasing investment in tech have been clear to the UK for sometime, it will help boost productivity, which has been falling behind for too long, and enable people to re-join a workforce currently struggling for the talent it needs.