Startup success is rare enough in the UK without any more taxes
If our rare successes are taxed further, more of our spinouts will end up sold early to foreign buyers and we risk losing their IP, writes Dr Ben Miles
Last week, we heard our new Prime Minister champion the UK as the future global “innovation nation”. But despite these warm words, he spectacularly failed to back Britain’s risk takers. Startups received just one mention in his speech and nothing he announced was aimed at backing entrepreneurs or those who invest in them. And my fear as an investor and physicist is that despite the many positive steps taken by Labour in the last two years, if the October Budget aligns capital gains tax (CGT) with income tax, it will be a body blow to the innovators of this country. Higher CGT means less British money in British companies and cheaper targets for foreign investors to snap up.
There was certainly no “theory for risk taking”. Public ownership got detailed plans but private capital incentives didn’t get a mention. No cheerleading for our world-leading UK quantum research, our life sciences, or work on fusion and semiconductors. On 28 October the Chancellor should keep long-term investment in British science out of any CGT rise. Better still, don’t raise CGT at all. What message does it send, after all?
Nuclear Turbines is just one of many spectacular British deep tech companies I back as co-founder of Empirical Ventures, a deep tech venture capital fund. This Manchester startup has developed pioneering technology: an advanced nuclear reactor that strips out the steam infrastructure that has helped keep nuclear prohibitively expensive for 70 years. Once it scales, they aim to supply power directly on industrial sites, which will dramatically help the reindustrialisation of the midlands and north Andy Burnham has promised. Nuclear Turbines is British innovation at its best, developed by engineers near the new Number 10 North. I can name many others just as brilliant, as the UK is the third-ranked deep tech economy in the world. But we will never reach number one with warm words.
Scientists are superheroes
Scientists are today’s superheroes. As founders they risk everything to solve humanity’s greatest challenges, with very low chances of success. Investors in biotech, robotics or advanced manufacturing wait 10 years plus for a return and they rely on the rare big success to make up for the many that fail. Deep tech requires patient capital and patient investors. And in the UK, we lack them.
The Royal Academy of Engineering finds UK investors take part in 57 per cent of deep tech rounds at seed but under 10 per cent at late stage. EIS funding is just the first of many fundraises. This tax rise will hurt the very people we need to help: UK scientist-founders and early employees with equity, angels investing outside EIS and UK individuals and family offices who could co-invest in later rounds but who won’t if the reward for a two-decade-long bet is taxed at 40-45 per cent.
If our rare successes are taxed further, more of our spinouts will end up sold early to foreign buyers and we risk losing their IP. Founders are already being tempted abroad to find funds, or they are setting up as Delaware C-corps to access US funding faster. Recycled exit money is how ecosystems build their own late-stage capital. Successful founders sell, then back the next generation as angels, fund investors and co-investors. I am an example. The fourth employee at Ziylo, then a small startup out of Bristol University, which went on to become one of the largest acquisitions of a spinout company in UK history, acquired by Novo Nordisk. I have recycled my experience and invested money back into the UK tech ecosystem, trained thousands of PhD students in entrepreneurship via my company Spin Up Science and am educating and, hopefully, inspiring future innovators on my Youtube channel, which has 2.56m subscribers.
We have some of the best talent on the planet and a good ecosystem for creation, but even small nudges can push it in the wrong direction. And then we will all lose.
Dr Ben Miles is co-founder of Empirical Venture, founder of Spin Up Sciences and host of Dr Ben Miles, his science Youtube channel