UK proposes post-brexit fund for tech startups

THE UK proposed a new National Investment Fund to help close a 4 billion pound (US$5.3bil) funding gap between American and British technology startups.

The fund would provide money and other incentives to the country’s most promising startups aiming to grow the young firms into future market leaders, according to a consultation announced last week by the Treasury. Authorities will look at how to spur investment into technology from pension funds, and how to commercialise research from UK universities.

Europe hasn’t produced giant technology companies such as Google Inc, Facebook Inc, Tencent Holdings Ltd and Alibaba Group Holding Ltd, that have thrived in the US and China. European startups face several disadvantages, including language differences and geographic borders that make it harder for the companies to grow quickly.

There’s also a smaller pool of venture capital available to young companies, according to the report, which didn’t provide many details on the size or structure of the pro- posed fund. The aim is to resolve the country’s handicap by providing “patient capital” needed for startups to grow, it said.

European governments have, for years, tried to spur the region’s technology industry. The UK has various tax breaks available for startup investors, while France, Germany, Portugal and other countries provide different subsidies. Yet the policies haven’t produced many of the world’s biggest startups.

According to the UK Treasury report, fewer than 10% of firms that receive seed funding in the UK reach a fourth round of investment, compared to nearly a quarter in the US. The UK accounts for just 4% of the world’s “unicorn” startups valued at more than US$1bil, compared with 54% in the US and 23% in China.

A central argument for the new UK fund is to offset some of the potential ramifications from the UK’s vote to leave the European Union. Almost 40% of all the funding for UK-based venture capital firms comes from the little-known EU-backed European Investment Fund. If that funding dries up as a result of Brexit, it will have a spillover effect on the broader UK tech ecosystem.

“Britain is an innovation powerhouse and it’s vital that we make sure our cutting-edge firms have the funding they need to meet their potential and conquer new markets," UK Chancellor of Exchequer Philip Hammond said in a statement.

The Treasury’s proposed fund would need to be considered by Parliament before it can be enacted. — Bloomberg