The UK startup sector is acting as a research and development (R&D) department for the US because so many of the country’s founders are upping sticks across the Atlantic to access capital, according to Alex Depledge, entrepreneurship advisor to UK finance minister Rachel Reeves.
“We’re underwriting American R&D right now,” Depledge told an audience at the Sifted Summit on Thursday. “50% of VC backed companies in the last 10 years have left the country.”
Depledge took up the role of entrepreneurship advisor to the UK Treasury in June and has had a hectic few months as the government prepares for its anxiously awaited Autumn Budget in November.
Her job will be to convince the UK government to rollout measures to stem the outflow of talented entrepreneurs searching for greener pastures overseas.
“There is an exodus of founders. Most people here will have had someone move to Lisbon or Dubai,” she said. “That's not good, because what happens is we're not getting the tax receipts, we're not getting the exit proceeds and most importantly, we are losing that talent.”
Depledge’s focus is on fixing what she calls “the valley of death”, which she said is the scaleup stage in between early-years startups and exiting to the capital markets.
“The bit where we fail to commercialise our R&D quickly enough, where we sell too early, where we’re forced to raise money that’s not UK money,” she tells Sifted. “Everything that I’m doing is trying to get more money into that part of the economy.”
Addressing the funding gap
Addressing the funding gap is one of her priorities — and the government needs to provide the right incentives for people looking to invest in British startups, says Depledge.
“One of the areas that I’m paying close attention to is what we can do with the British Business Bank (BBB) and how it can cornerstone funds, rather than be the last money in.”
The BBB is the UK’s state economic development bank, and serves as a major LP in UK venture capital funds.
Regulation also “hampers” startups in the UK, she adds.
Prime Minister Keir Starmer has made clear his desire to cut regulation to enable growth in the country, and that sentiment runs through the upper echelons of government, Depledge says.
“Rachel [Reeves] has been really clear that we need to remove the red tape. Founders want two things: access to finance and they want everyone to get the fuck out the way, and that’s the environment we need to provide.”
Autumn budget
Many expect tax rises as Reeves looks to balance creaking public finances.
Last year’s Autumn budget saw business rates hiked alongside increases to capital gains tax paid on shares sold — and founders and investors are worried both will rise again.
One corporate law firm tells Sifted they’ve already begun receiving requests from founders looking to get deals done before the budget is announced on November 26 to avoid any increases.
“This is one of the most frustrating things I come across, the vast amount of speculation that goes on in the press,” she said.
“Most of the stuff that I read in the papers is not being talked about in the Treasury. I can't put it any simpler than that. You're all panicking for no reason, Rachel [Reeves] assured me she doesn't want to do anything that hurts growth.”
While Depledge was tight lipped about specific measures the budget would include, she said it would be a “budget for entrepreneurs”.
“And I hope when it comes out, it speaks to the people in the audience, because my fingerprints are all over it. And if it doesn't speak to you, well, then I deserve to be shot.”
