In the now impossibly tranquil-seeming days of the early 2010s, David Cameron’s coalition government became obsessed with Silicon Valley. Although the reverberations from the 2008 financial crisis were still being felt, it was possible in a world before Brexit and coronavirus for politicians to fixate on something as trivial as technology start-ups and not be consumed by criticism.
Cabinet ministers travelled to Palo Alto and came back convinced that Britain needed a dose of the Valley’s venture capital culture. The cringingly named “Silicon Roundabout” in East London became a focal point for the UK’s emerging tech sector and ushered in a boom that has seen the likes of Revolut, Transferwise (now known as Wise and worth £13bn after its recent IPO) and Deliveroo change the way we live our lives.
As a business journalist working in London, it was an exciting time: It felt like the old guard – those mainly white, ageing men who had watched on from their boardrooms as the financial crash spread like a deadly virus – were being replaced by a generation of exciting young entrepreneurs with ideas that could take over the world. I remember visiting Level 39, a tech incubator being constructed at the top of a skyscraper in Canary Wharf, and being introduced to the word fintech. It kept being autocorrected as I typed up my story.
Since those heady days, politicians from all parties have rarely missed an opportunity to bask in the sheen of success brought by fast-growing tech companies. The implication being, of course, that it was their foresight that helped create them. Claiming credit for the work of others is everyday stuff for the average MP, but alarm bells start ringing when they try to involve themselves more directly, which is exactly what is happening with the £375m Future Fund: Breakthrough programme.
The fund will see British Patient Capital, a subsidiary of the government-owned British Business Bank, take direct stakes in companies alongside private sector investors. It will focus on R&D intensive businesses in “breakthrough technology sectors” such as quantum computing, cleantech and life sciences and will contribute up to 30% of investment rounds worth a minimum of £30m.
Predictably, it is promoted as a “UK wide programme”, but the fine print in effect rules the South West out from receiving any of the cash. A funding round of £30m would suggest a company worth £100m or more: How many of those, in the sectors specified by the government, currently operate in the South West? We have some incredibly exciting cleantech businesses, while quantum computing is an area of growing strength. I cannot think of many that will be in a position to raise £30m any time soon, though.
In reality, this is a London fund. There will be the odd investment in Manchester, Edinburgh and Glasgow, but most of the cash will stay inside the M25, as it always does. Of the total number of private equity and venture capital deals signed off in the past year, barely 5% were made in the South West, according to the British Business Bank’s Equity Tracker 2021 report. London and the South East accounted for nearly 70%.
There is another issue, which poses an existential threat to the entire programme. Why would any truly exceptional business accept the money? Take Bristol’s Graphcore, probably the brightest tech spark in the South West. Should the chip designer want to raise funds, it would be inundated with offers from around the world. Why, then, would it bring in the government as a shareholder? Even if the state is a passive investor, there would be a political dimension to all decision making because ultimately a chunk of the company is owned by the taxpayer. No founder or chief executive with real ambition would accept those terms. It means there is a danger that the Future Fund: Breakthrough becomes a portfolio of second-rate businesses owned by the public.
The problem with this new fund is not the old criticism of a government “picking winners”. Carefully selecting the industries of the future and backing them seems entirely sensible. Nor is it with providing much needed “patient capital” to companies looking to supercharge their growth. The real issue is that the mechanism set up to achieve those goals looks to be flawed from the start.
Peter Evans is a former reporter and editor at The Sunday Times and Wall Street Journal