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BRITISH START-UPS SHOULD BE KEPT ON HOME SOIL, SAYS TOP BANK BOSS, WHO SAYS U.S.
BUYOUTS ARE GETTING ALL THE GLORY WITH NONE OF THE RISK

Home - Bussiness - British start-ups should be kept on home soil, says top bank
boss, who says U.S. buyouts are getting all the glory with none of the risk
Bussiness
 * December 28, 2023

By Admin December 28, 2023
24 3 minutes read
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Britain has long been recognized as one of the world’s key financial hubs. But
in recent years, it’s witnessed a slew of home-grown companies shift their
headquarters to the U.S. or list in American stock markets in the hopes of
attracting global attention.

However that’s left the U.K. to carry all the risks of backing start-ups while
its peer across the Atlantic reaps the benefits, according to the boss of the
major state-owned British Business Bank (BBB). 

“We’re developing these companies, and then they’re being acquired either . . .
 by corporates—often U.S. corporates, but not exclusively—or they’re being
acquired by U.S. investors, who then redomicile the business,” Stephen Welton,
chair of the economic development bank told the Financial Times in an interview
published Thursday. He assumed the role in October after a career working with
scaling up companies and investing in British business. 

“We don’t want to be an incubator economy taking all the risk of these very,
very tiny companies, and then not able to capitalise on that by following
through with the scale-up capital to turn some of those into true global
companies,” Welton said.


BRITAIN’S CHALLENGES

Not too long ago the U.K. was clocking in major gains in tech listings, showing
great promise. But even as it’s risen to be a leader in Europe, Britain has been
trailing behind the U.S. when it comes to venture capital funding.

“The funding gap between the U.K. and U.S. is primarily driven by varying levels
of funding going into research and development-intensive sectors (largely
deeptech and life sciences) with the U.K. having a lower deal and investment
share going to this sector,” a BBB spokesperson told Fortune. “The U.S. provides
a useful benchmark for the U.K. to aspire to as its VC ecosystem is the largest
and most developed globally.”

Amid a global slowdown impacting several industries including tech, the U.K.’s
VC ecosystem has struggled to maintain its allure. In public markets,
U.K.-founded companies such as chipmaker Arm and construction materials company
CRH have moved to the U.S. citing growth opportunities and higher valuations. 

“The U.K. is very well-placed to start companies and to spin them out of
universities and to give them that first leg on the ladder,” Welton told the FT.
He added that “we’re not nearly as successful when it gets to the next two or
three legs of the ladder where the U.S. predominates,” but that challenge isn’t
specific to Britain alone. 

In the last decade, nearly 5,000 high-growth U.K. companies have been sold to
conglomerates like French pharma group Sanofi, the FT reported citing data from
Beauhurst. 

Britain’s market for smaller-sized stocks has also been shrinking, raising
concerns about London slipping below its competitors as a financial center. In a
June report, advocacy TechUK referred to the U.K.’s economy for start-ups as one
that’s “broken” and in need of fixing if the country hopes to be one among
global players. 

Welton also highlighted how it can be “way too complicated” for small companies
to raise funds, and often struggling with finding the resources that best suited
them. 


OPENING UP NEW FUNDING DOORS

Despite structural challenges, the U.K. remains one of the financial epicenters
globally. Its strong suit especially lies in scaling tech ranging from life
sciences to fintech and AI, the BBB spokesperson said.

The BBB wants to back “the big, significant companies of tomorrow,” Welton
said.  

For its part, the British government is trying to make private capital more
accessible in the venture capital realm. In November, finance minister Jeremy
Hunt laid out plans to expand pension schemes that can invest in U.K. start-ups.
This could potentially open up £75 billion ($96 billion) in financing for
high-growth firms by 2030 while also boosting pensioners’ returns. 

The BBB is set to work on the so-called “Mansion House Compact” initiatives set
out by Hunt through a growth fund that will provide additional support to
private pension funds. The investment vehicle will “utilise the Bank’s market
access and position as the largest domestic investor in U.K. venture capital,”
BBB’s spokesperson said. An additional £50 million will also be pumped into
BBB’s “Future Fund: Breakthrough” that invests in innovative U.K. companies. 

These measures are ultimately aimed at ultimately building a robust pipeline of
companies that could potentially list in the London Stock Exchange and
bolstering Britain’s global competitiveness. 

Subscribe to the new Fortune CEO Weekly Europe newsletter to get corner office
insights on the biggest business stories in Europe. Sign up for free.
Tags:
 * competition
 * london
 * London Stock Exchange
 * pension funds
 * stock exchange
 * U.K.
 * U.K. economy
 * U.K. United Kingdom
 * venture capital

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