Regulation risks making Big Tech bigger

Should we regulate Big Tech? Writing in CapX, I argue that there’s a risk that regulation could put smaller companies at a disadvantage.

Smaller companies are less able to comply with tough mandates to take down content. While a large firm can hire the best Machine Learning engineers on six figure salaries, smaller firms will struggle to automate content moderation and will instead rely on costlier manual moderation.

This isn’t just theory. GDPR, the regulation that provides the model for the Federal privacy law desired by Cook has stifled competition within Europe.

The EU’s privacy law has led to a consolidation within the market. Google’s market share increased, while Facebook’s fell slightly. But the real victims were smaller adtech vendors who saw 20-30 per cent falls in reach. Dozens of companies have blocked EU users or shut down services entirely in response to regulation.

GDPR has also depressed VC investment in Europe. A recent paper from Illinois Institute of Technology found that aggregate investment in the EU’s tech ecosystem fell by 40 per cent once the strict rules came in. As the report’s author put it: “The lesson from GDPR is that whatever regulation you adopt, don’t make it overly burdensome for the youngest companies.”

Read the full article here.

What do entrepreneurs need to know from the Budget?

This is the first of many policy updates. Through these updates, we aim to keep you abreast of any policy changes that affect entrepreneurs from tax changes to reforms to the UK’s immigration system. We know that entrepreneurs are busy people, so we’ll keep these briefs, er, brief. 

This month, we’re focusing on the Budget. While the ‘end of austerity’ and tax cuts for 32m grabbed the headlines, there were a range of measures targeted at start-ups, scale-ups, SMEs and entrepreneurs that are worth looking at.

We’re singling out measures that could directly affect your business (for better or worse). For a broader look at the budget, we recommend the Institute for Fiscal Studies’ post-budget analysis. If you’re working in tech then you might also want to look at our founder Philip Salter’s tech rundown for UK Tech News.

Policy Changes

A (temporary) tax cut for the High Street.

Small retailers got a boost when the Chancellor announced that he would cut business rate bills by a third from April 2019 for retail properties with a rateable value of under £51,000. This will benefit 90% of retailers. But note, this is a temporary tax break. It will expire in 2021. However, the appetite for reform in the long run will surely grow.

Entrepreneurs’ Relief survives (but with strings attached).

Ahead of the budget, there was talk of scrapping Entrepreneurs’ Relief to fund additional NHS spending. The Chancellor ruled that out stating “I do not believe we can have sustainable public services unless we have a dynamic economy. And encouraging entrepreneurs must be at the heart of our strategy.”

But he did announce additional controls on the relief. Currently, Entrepreneurs’ Relief means entrepreneurs pay a 10% (instead of the usual 20%) rate of capital gains tax on the first £10m when they sell their business. Under the new rules, entrepreneurs will need to have held their assets/shares for at least two years (instead of one). This shouldn’t affect most business owners, but might affect tech start-up founders who sell-up after a year to a Facebook, Google or Amazon (See tbh)…

Join Us to read the whole Policy Update

True Stripe

Building on the work of economists Tyler Cowen and Robert Gordon, Stripe's billionaire co-founder Patrick Collison and Y-Combinator’s Michael Nielsen add more meat to the hypothesis that we’re getting less scientific bang for a buck than we used to. They survey scientists, comparing Nobel Prize–winning discoveries in their fields and conclude that scientific breakthroughs look to be getting less significant.

This matters for entrepreneurs and policymakers around the world. In the UK, the Government has committed to a target of 2.4% of GDP invested in UK R&D by 2027, with a longer-term goal of 3%. If science really has significantly slowed per pound or hour spent – and I'm broadly convinced it has – this should make us question whether the funding processes and institutions are the very best that they can be. After all, a lot of this money is funded by governments with the aim of ultimately stimulating entrepreneurial activity.

As Collison and Nielsen conclude, the "evidence demands a large-scale institutional response. It should be a major subject in public policy, and at grant agencies and universities. Better understanding the cause of this phenomenon is important, and identifying ways to reverse it is one of the greatest opportunities to improve our future."
 

Easy as APPG
Following last week's publication and launch of the All-Party Parliamentary Group (APPG) for Entrepreneurship's Enterprise Education report, as the Secretariat we're busy scoping out potential research areas for the next 12 to 18 months ahead of our AGM in December. Now is the time to get in touch if you have any areas of policy that you think we should raise with the MPs and Peers across the House of Commons and Lords who make up the APPG's Officers.

Top programming
In last week's political turmoil, we didn't have space to mention the ScaleUp Institute's formidable 2018 ScaleUp Review. The report is packed with useful information on the state of scale-up activity in the UK, but for entrepreneurs looking for a practical angle, Annex 1 provides pithy Local Area Summaries on the top programmes in the area to help them scale their business.

Fintech's 4 Fingleton
Calling all fintech entrepreneurs! Next month we will host a roundtable with John Fingleton, founder and CEO of Fingleton Associates and the former CEO of the Office of Fair Trading from 2005 to 2012. This event will be a chance to hear from one of the UK's leading experts on regulation. In government, he oversaw merger regulation, enforcement of competition rules, consumer protection, and credit regulation. Get in touch if you're a fintech founder who wants to get involved.

Read the whole e-bulletin here, and sign up here.

Wise Council

Theresa May is setting up five business councils to advise on Post-Brexit policy –one of which will be for Small Business, Scale ups and Entrepreneurs. It will be co-chaired by James Timpson (CEO, Timpson), Brent Hoberman (chairman, Founders Forum) and Emma Jones (founder, Enterprise Nation). All are great appointments. Emma is one of our Advisers and one of the most prolific and most effective defenders of small businesses in the country. Watch this space for updates on its work.

Turing complete
The Alan Turing Institute, the UK’s national institute for data science and artificial intelligence, is exploring how it will work with small companies as a part of their mandate to achieve impact through data science and AI research. They are seeking to understand how UK SMEs could benefit from the Institute’s assets and activities and they are inviting your input via a public consultation. Tell Turing what SMEs need to succeed. The consultation closes on 26th November.

Read the whole e-bulletin here, and sign up here.

Fiscal Phil loosens up

Chancellor Philip Hammond's Budget delivered the largest discretionary "fiscal loosening" since 2010. While the NHS got most of the money, entrepreneurs weren't ignored. However, it wasn't a perfect Budget.

In response, we were quoted in The Times (£) on the need to make the welcome increase in the Annual Investment Allowance permanent, and our Research Director Sam Dumitriu wrote for CapX explaining why a special tax for tech giants isn't a smart policy.   

I also dug into the documents to give a pretty comprehensive roundup of the tech announcement for UKTN. And we were quoted in SmallBusiness.co.uk on what the Chancellor should have done on Business Rates.

Entrepreneurs running businesses of all sizes will breathe a sigh of relief about what wasn't announced. The predicted scrapping of Entrepreneurs' Relief didn't materialise (just a tightening around the rules), and many of the self-employed will be content with the delay in introducing IR35 to the private sector.

Following are our thoughts on a few of the announcements.

On the increase in the Annual Investments Allowance
To help stimulate business investment, the government will increase the Annual Investment Allowance (AIA) to £1m for all qualifying investment in plant and machinery made from 1 January 2019 until 31 December 2020.

This will be a welcome announcement for business owners looking to invest, but by making it temporary the Government is failing to offer businesses the stable environment they need to properly plan for the future. Over recent years the AIA has yo-yoed from £100,000 down to £25,000, up to £200,000, up to £500,000, down to £200,000, and now temporarily up to £1m. This is the epitome of business uncertainty.

On the plan to impose a 2% Digital Services Tax on ‘tech giants’
The Chancellor may live to regret making the tax system even more complex. Corporation Tax needs updating, but any reform should focus on fixing the general rules, rather than papering over the cracks in the status quo. Singling out ‘tech giants’ may lead to UK SMEs paying more to advertise through social media and because the tax is levied on revenue not profits could unfairly disadvantage firms who are still raising money through equity finance.

On additional Business Rates Relief for small high-street retailers
The Chancellor has missed an opportunity to fix business rates. Instead of managing decline, Philip Hammond should have prioritised removing barriers to business growth and investment. Replacing business rates with a business land tax paid by commercial landowners would dramatically cut paperwork for most business owners and create a stronger incentive for businesses to invest in improving their properties.

On increased funding for management training
There’s clear evidence from The Entrepreneurs Network’s Business Stay-Up campaign that improving the quality of management skills in the UK is key to raising productivity. Creating stronger peer-to-peer networks and boosting the Knowledge Transfer Partnership to allow best practices to diffuse is rightly a priority. But the Chancellor should go further and create additional tax reliefs for employee-funded training.

On boosts to R&D spending
A significant amount (£1.6bn) has been allocated to increasing the Industrial Strategy Challenge Fund. Among other things, the Government is taking a punt on quantum technologies, nuclear fusion, artificial intelligence and distributed ledger technologies. It will also put another £115m into the Digital Catapult, which has centres in the North East, South East and Northern Ireland, and the Medicines Discovery Catapult in Cheshire.

While there are strong arguments that at current R&D investment levels increasing Government spending could leads to positive economic spillovers, we need to ensure that we get value for money. For example, just last year the Digital Catapults were heavily criticised in a BEIS commissioned review by Ernst & Young. The devil will be in the implementation.

Read the whole e-bulletin here, and sign up here.

Fiscal Phil Backs Entrepreneurs but Dodges Overdue Reforms

Philip Salter, Founder said:

“Hammond's Budget wasn't short of pro-business rhetoric, and the Budget document itself contains a number of announcements designed to support Britain's entrepreneurs. And we didn't get the predicted scrapping of Entrepreneurs' Relief which will be a boost to Britain’s ambitious business owners."

“However, it is by no means a perfect budget for entrepreneurs. While spending on R&D, management training and the boost to the Annual Investments Allowance are welcome, the 2% digital services tax on ‘tech giants’ and business rates relief represent missed opportunities for fundamental reform.”

On the increase in the Annual Investments Allowance:

Philip Salter, Founder said:

To help stimulate business investment, the government will increase the Annual Investment Allowance (AIA) to £1m for all qualifying investment in plant and machinery made from 1 January 2019 until 31 December 2020.

This will be a welcome announcement for business owners looking to invest, but by making it temporary the Government is failing to offer businesses the stable environment they need to properly plan for the future. Over recent years the AIA has yo-yoed from £100,000 down to £25,000, up to £200,000, up to £500,000, down to £200,000, and now temporarily up to £1m. This is the epitome of business uncertainty.

On the Chancellor’s plan to impose a 2% digital services tax on ‘tech giants’

Sam Dumitriu, Research Director said:

“The Chancellor may live to regret making the tax system even more complex. Corporation Tax needs updating, but any reform should focus on fixing the general rules, rather than papering over the cracks in the status quo. Singling out ‘tech giants’ may lead to UK SMEs paying more to advertise through social media and because the tax is levied on revenue not profits could unfairly disadvantage firms who are still raising money through equity finance.”

On additional business rates relief for small high-street retailers

Sam Dumitriu, Research Director said:

“The Chancellor has missed an opportunity to fix business rates. Instead of managing decline, Philip Hammond should have prioritised removing barriers to business growth and investment. Replacing business rates with a business land tax paid by commercial landowners would dramatically cut paperwork for most business owners and create a stronger incentive for businesses to invest in improving their properties.”

On increased funding for management training

Sam Dumitriu, Research Director said:

“There’s clear evidence from The Entrepreneurs Network’s Business Stay-Up campaign that improving the quality of management skills in the UK is key to raising productivity. Creating stronger peer-to-peer networks and boosting the Knowledge Transfer Partnership to allow best practices to diffuse is rightly a priority. But the Chancellor should go further and create additional tax reliefs for employee-funded training.

On boosts to R&D spending

Philip Salter, Founder said:

A significant amount (£1.6bn) has been allocated to increasing the Industrial Strategy Challenge Fund. Among other things, the Government is taking a punt on quantum technologies, nuclear fusion, artificial intelligence and distributed ledger technologies. It will also put another £115m into the Digital Catapult, which has centres in the North East, South East and Northern Ireland, and the Medicines Discovery Catapult in Cheshire.

While there are strong arguments that at current R&D investment levels increasing Government spending could leads to positive economic spillovers, we need to ensure that we get value for money. For example, just last year the Digital Catapults were heavily criticised in a BEIS commissioned review by Ernst & Young. The devil will be in the implementation.”

Press Coverage: APPG Reports

In mid-July, Sam Dumitriu and Philip Salter were busy writing for the Telegraph, Conservative Home and CapX on the key issue of business tax reform.

Sam wrote for the Telegraph, arguing that the solution to the problem of business rates is obvious – base them on land value.

Furthermore, Sam went on to write an article in Conservative Home, in which he argues that policy-makers should look closely at the regulations and taxations on businesses. Citing an APPG survey, it was noted the taxes that discouraged entrepreneurship the most were business rates.

Our founder, Philip Salter, was writing on the same subject for CapX; saying that tax reform is needed to remain competitive. Philip reasons that regular reviewal by the Treasury to test if policies are cost-effective would be highly beneficial, plus helping to promote property investment. He goes on to write that tax breaks such as the ISA and EIS are both successful and would level the playing field for the smaller, unlisted businesses.

Finally, Stuart Stone’s piece in the MorningAdvertiser comments on the welcoming of a reformed tax by UKHospitality, due to the gross overpaying of the hospitality sector––a £1.8bn sum that is hard to blink. UKHospitality’s chief executive Kate Nicholls says that the tax reformation is “something that we have consistently called for.” and stridently indicates that “The current system of business tax is completely out of date and totally unsuitable[...]”.  

Our second report, on female entrepreneurship, has also received extensive press coverage.

Neil Hodgson from TheBusinessDesk wrote an article on the women in leadership paper, quoting the vice chair of the APPG for Entrepreneurship, Seema Malhotra MP, and Lisa McMullan, the organisation’s director for development and consultancy. Lisa stated that ‘it’s about time that we recognise that female entrepreneurship is not only a gender issue, but an economic one, too.’ TheBusinessDesk went on to include some recommendations and highlighted that ‘only a tenth of growing firms with revenue between £1m-£250m are run by women. In the US, this figure is closer to a fifth.’

In the Telegraph, Annabel Denham, wrote about the gender pay gap discussion and how it should help the conversations around female entrepreneurship; calling for the government ‘to review nursery and pre-school teacher-child ratios’ so that self-employed mothers can work ‘while receiving maternity allowance’. Annabel argues that first the societal expectations must be reversed in order for the gender funding gap to be reduced. Annabel ends strongly with ‘If the Government wants UK companies to compete on global markets, it must do all it can to boost the growth of female-led businesses’.

The Telegraph featured the report in their Saturday paper: “Mumpreneur” and “lipstick entrepreneur” are terms Olivia Rudgard, Social Affairs Correspondent at the Telegraph, used to highlight gender stereotypes before stating their harmful effects on girls’ mindsets. Olivia argues that “The media should move away from gender altogether when profiling Britain’s most successful entrepreneurs.” and quotes the women in leadership paper when it states 31% of women say gender is a hindrance when trying to expand their business. This is due to obstacles such as “networking opportunities that favour men”. With the sponsorship of Octopus, headed by Chris Hulatt, the APPG has suggested that the introduction of a paternity allowance might improve gender stereotypes in the office environment. Olivia also called for childcare laws to be changed for more children to be looked after, i.e. a higher teacher-pupil ratio, as “the UK’s ratios are currently “among the stringent in the OECD””. Chris added that “it is critical that women have the same opportunities to realise their ambitions and create the high growth businesses of tomorrow.”

Annabel also wrote for CapX arguing why if we liberalised the childcare system, options for female entrepreneurship would widen.






 

Omnishambles

At yesterday's Balkan Summit in London, foreign ministers and entrepreneurs from Serbia, Bosnia-Herzegovina, Montenegro, Kosovo, Macedonia and Albania were stood up by Boris Johnson who was due to unveil £10 million in aid funding to help young people in the Western Balkans improve their digital skills. When he later emerged, Boris followed David Davis in quitting the government. Our politics is an omnishambles.


A year ago, I wrote an e-bulletin entitled M is for Mediocre. It got lots of responses from people agreeing with my pointed conclusion that too many of our current crop of MPs aren't up to scratch. (The exceptions we invite to speak at our events.) Whether through the current political parties, or perhaps through one of the plethora of new "centrist" parties, we need smarter people in power. Now is the time for those with the right skills to enter politics. But as Billy Connolly quips: "The desire to be a politician should bar you for life from ever becoming one."

What a GEM!
It's not all bad news. Last week we helped launch the Global Entrepreneurship Monitor (GEM). Coming out of Aston University and sponsored by NatWest, the GEM is the largest and most comprehensive study on entrepreneurship globally, collecting data on entrepreneurial activity in 54 countries, covering two-thirds of the world’s population.
 

This year the UK edition revealed that people from ethnic minority and immigrant backgrounds are twice as likely as their white British counterparts to be early-stage entrepreneurs. On the back of the launch, I wrote for City AM yesterday on why Britain should be proud to be a nation of immigrant entrepreneurs.

 

You can read the full e-bulletin here and sign up here

Unlike a Virgin

Richard Branson and Harland David Sanders are exceptional. Branson was always an entrepreneur, shunning school to trade in Christmas trees and budgerigars; while "The Colonel" waited until he was 65 before starting KFC.

Branson and Sanders are exceptions to the rule – that there is a sweet spot for successfully starting and growing a business. Thankfully, it's rather large: 25 to 49. After this age, entrepreneurship is more likely to take the form of self-employment or micro businesses without growth ambitions.
 

According to Demographics and Entrepreneurship – a book that we have recently released with the Fraser Institute – leaders across developed countries should be concerned about ageing populations and mitigate the pressure this will exert on reducing the quantity and quality of entrepreneurship.

The ideal demographics for entrepreneurship peaked around 1995, the UK, US, Australia and Canada are all expected to see a significant projected decline in this key entrepreneurial age group across all four countries by 2065.

Short of governments distributing aphrodisiacs – and sadly clinical trials suggest oysters and other natural libido enhancers don’t actually work – what can be done? Across 498 pages, we have some suggestions.

Chapter considers the impact of capital gains tax upon entrepreneurship. Capital gains tax is effectively a tax on future consumption over current consumption. Mitchell and his co-authors argue that high rates reduce start-up activity:

“Compared to other countries in the OECD, Australia, Canada, the United Kingdom, and the United States all have room for improvement when it comes to their top personal capital gains tax rates. The United States and Canada, for example, have top capital gains tax rates above the OECD average and rank in the top third of countries with the highest top capital gains tax rates in the OECD. While Australia and the United Kingdom have top capital gains tax rates under the OECD average, they, too, still have room for improvement as 11 and 14 countries have top capital gains tax rates lower than those in the United Kingdom and Australia, respectively. All four countries are thus able to improve their position on capital gains taxes in order to spur entrepreneurship.”

In chapter 9, Peter Vandor and Nikolaus Franke consider immigration. The evidence shows that immigrants are particularly entrepreneurial, with the Global Entrepreneurship Monitor showing higher entrepreneurial activity among first-generation immigrants than natives:

“The relatively strong inclination of immigrants to become entrepreneurs is not a new phenomenon. Historians have documented the economic impact of immigrant entrepreneurs in different countries and time periods. Jewish immigrants constituted a significant share of successful entrepreneurs in the United Kingdom between the 1930s and 1950s. These mostly Lithuanian and Polish immigrants have left their mark in many industries, creating household names such as Marks and Spencer or the food retail giant Tesco by introducing product and financial innovation.”

Just consider Silicon Valley. As John Collison, an Irish immigrant and co-founder of the payments start-up Stripe, explains in the New York Times: “The U.S. is sucking up all the talent from all across the world… Look at all the leading technology companies globally, and look at how overrepresented the United States is. That’s not a normal state of affairs. That’s because we have managed to create this engine where the best and the brightest from around the world are coming to Silicon Valley.” 
 

Collison is right. Our Government desperately needs to change tack to offset the uncertainty around Brexit. As Vandor and Franke argue:

“The economic and political climate of a country plays a significant role in the attraction of highly skilled migrants, as has been witnessed with the Brexit vote and the election of president Trump in 2016. Even before any concrete policy measures had been implemented, the public perception of these events had already triggered a measurable decrease in graduate student applications for universities in the United Kingdom and the United States. At the same time, universities in countries associated with more open policies, such as Canada and Australia, saw a significant increase in applications in the aftermath of these events, suggesting a redirection of mobile international talent in their direction.”

We are in the planning stages of a research-led project on the connection between immigration and entrepreneurship. If this is the sort of thing you or your company would like to get involved, drop me an email to find out more.

You can read the full e-bulletin here and sign up here

 

Press Coverage Round Up Q2

Following the launch of our annual report on female entrepreneurship we received a lot of media coverage on a range of different subjects. However, despite the successful launch causing celebration, we’ve not been lying idle.

Q2 kicked off with our Programmes Director, Sophie Jarvis, having a piece in the Telegraph comment section of the paper! She commented on the launch of BBC’s 50:50 project to get more women experts on panels arguing that, although the intention might be to empower women, the project will have the opposite effect.

Also, for the last month we’ve been very active on the recently launched Refresh, a new initiative by the Telegraph on their website providing comment pieces on the biggest problems facing Britain written by young people for young people.

Our founder, Philip Salter, and Sophie have both been in Refresh making calls for Britain, and Tories specifically, to embrace immigration if we want Britain to prosper. Sophie argues that the Tories can once again become the party for entrepreneurs as it was in the glory days of the late Margaret Thatcher if they endorse a new liberalised immigration system. By giving access to a broader pool of talents, entrepreneurs have the opportunity of scaling up their business. As Sophie also notes, scale ups are much bigger generators of economic growth than start ups, although focus should not be on one over the other. According to Philip, this could help detoxify the Tories and shake off their image as the “nasty party”.

On a different subject, our editor, Annabel Denham, was arguing in Refresh that young people have embraced the gig economy. Therefore, if the Tories want to recapture the Millennial generation they must stop implicitly conceding that Corbyn is right by killing off innovation with regulation. Not only will they scare of millenials with regulation, but it would hurt everyone else in the economy as well. In fact, as Annabel argues in the Women Mean Business section of the Telegraph, the gig economy is the future and women can lead the charge.

Those of you who’ve read our report (if you haven’t, you can read it here) know that mentorship is one of the best vehicles for encouraging and supporting entrepreneurship. If you want a slightly condensed version of the arguments, Jarvis was in the Women Mean Business section as well, making the case for why creating mentors are key for female entrepreneurship.

Our founder, Philip Salter, has also been busy on Forbes this month. He has done some interesting interviews with several entrepreneurs. He’s been chatting to co-founder and CEO of Coinfirm among other things, a company that is trying to professionalise the crypto industry.

Chances are you’ve not heard of mixed-reality marketing and you most likely haven’t heard of Landmrk, but Philip have been talking to their their co-founder and CEO to find out more on how mixed-reality can revolutionize marketing.

Ahead of Scale Up Britain, an event we’re hosting to highlight the importance of scale-ups to the British economy, Philip interviewed the co-founder, Chieu Cao, of Perkbox. Cao is not hedging his ambition, he wants Perbox to grow to be a £100m+ run rate business in 2020, followed by an IPO and Philip interviewed him to find out more.

Philip also talked to Kim Palmer, the founder of Clementine, an app helping women struggling with anxiety, low self-esteem or generally overwhelmed by life’s stress to become more confident. She tells her story of how she turned a dire situation into her first start-up.

Christian Owens, founder and CEO of Paddle, a one-stop shop for firms and developers selling software, also spoke to Philip on what lies ahead for his company.

The recently published report on AI by the House of Lords Artificial Intelligence Committee made Philip chip in with his thoughts on the subject. He thinks it’s important that the House of Lords don’t dismiss the risks of AI.

Annabel provides insight into the machinery of the UK’s second fastest growing business, Bloom & Wild. She tells the story of how the company managed to stay on top of the game and to make the step onto the international scene.  

If you’re unable to find Sophie in the newspapers, you’ll most likely find her on a radio station near you. This month she was co-hosting Hoxton Radio’s DE:CODE, a program talking about the latest tech news and our event at the International Festival Business in Liverpool on June 12th. She’ll appear around 16:30 min. in. She also went on BBC London to do a paper review with Vanessa Feltz. She’ll be on from min. 48:30, and has appeared on talkRADIO for paper reviews on the day of the Royal Wedding (from 6am to 7am) & earlier on in April (from 7am to 10am)!  

And last but not least, Sophie also spoke at Big Tent Ideas Festival Warm Up organised by George Freeman MP. She managed to come second in the finale! Her topic was on the equity funding gap. If you want to read some of her thoughts on the subject, she was in the Guardian this month writing about it. And if you have read all her articles and listened to all her radio appearances and you still want more, you can watch her talk here. In June she’ll be speaking at the RSA.

Demographics and Entrepreneurship: Mitigating the Effects of an Aging Population

Entrepreneurship is widely acknowledged as the basis for innovation, technological advancement and economic progress—and subsequently, a driving force for improved living standards.

Most of us are generally unaware that as our population ages, the share of the population best positioned to be successful entrepreneurs—individuals in their late-20s through to their early-40s—will shrink. People in this age group drive entrepreneurship because they are both willing to take risks to start their own business while also possessing real-world business experience, which increases the likelihood of success.

While there’s little that governments can do to halt the ageing of their populations, a number of policy initiatives could strengthen the incentives for entrepreneurship and improve the likelihood of successful new business start-ups.

Key among potential policy reforms is tax relief, both in the form of reductions in marginal tax rates for individuals and businesses and reductions (or even the elimination) of capital gains taxes. These reforms were broadly determined to strengthen the incentives for people to start and grow businesses (i.e. take risks) and expand the pool of entrepreneurial capital.

Other key potential reforms include reducing red tape to make it easier to start new businesses and grow existing ones, changes to banking and financial regulations that would make it easier for entrepreneurs to access the financial capital needed to start and grow their businesses, and policies encouraging increased immigration of individuals with skills and other attributes that make them potential entrepreneurs.

Developed countries face a long-term decline in entrepreneurship that is at least partially driven by demographics. Since demographic trends cannot be easily reversed, countries will have to improve the environment in which entrepreneurs and businesses operate, to encourage more and better entrepreneurs.

Read Demographics and Entrepreneurship: Mitigating the Effects of an Ageing Population to find out how we can mitigate these demographic trends. It's a collaboration with Canada’s Fraser Institute, the Centre for Strategic and International Studies (CSIS) in the US and the Institute of Public Affairs in Australia.

Why Britain’s Businesses Need To Scale Up

Editor, The Entrepreneurs Network,

Join us at Scale Up Britain

A decade ago, entrepreneurship became the national obsession as thousands of bold entrepreneurs struck out alone, built businesses and lifted the UK economy out of recession. Though the start-up revolution shows no sign of abating – with the number of companies founded reaching new highs in 2017 – the challenge now is ensuring new companies fulfil their potential, scale, and go global. Britain’s businesses need to scale up.

The UK is third in the world for new company formation, but our record on scale-ups is less impressive.

According to the OECD, the UK is third in the world for new company formation, but our record on scale-ups is less impressive. The most recent Scale-Up Institute report has revealed there are currently 31,440 scale-ups – defined as an enterprise with average annual growth in employees or turnover greater than 20 per cent per annum over a three-year period, and with more than 10 employees at the beginning of the period – in the UK. We can and must do better.

Access to talent, finance and management experience are brakes on scale-up development.

The ratio of companies making it through the start-up phase to establish themselves as sustainable and substantial businesses is an important one. High levels of productivity are twice as common among scale-ups, which average £235,000 per employee. Scale-ups are twice as likely as their peers to be trading internationally, and twice as likely to have innovated in the past three years. Close to three-quarters of scale-ups offer opportunities to young people through internships or apprenticeships. And almost half have at least one female director.

Access to talent, finance and management experience are brakes on scale-up development. Longer-term government policy is important, but here and now there are businesses struggling with those issues and looking for support. For this, there is an increasing role for large business, the media, financiers, academia and our flourishing entrepreneurial ecosystem to provide support to those at an earlier stage on the journey.

The Entrepreneurs Network is an increasingly important part of the UK’s entrepreneurial ecosystem. Through the media, research and the APPG for Entrepreneurship, we have an impact on public and political debates and influence government policy. But we also run a number of programmes designed to help entrepreneurs start, run and scale their business.

Setting your company on the path to growth is always a challenge. That’s why next month we will be holding an all-day event at the International Business Festival with high-profile entrepreneurs. Hosted every two years in Liverpool, the festival gives businesses the space, support and expertise they need to make connections, do deals and realise their potential

The UK’s economic recovery was built on the success of start-ups, but our future prosperity relies upon turning those start-ups into scale-ups.

Our one-day event will comprise of five panels with leading scaleup entrepreneurs, covering the key challenges of scaling in an uncertain world; the power of tech; scaling with social purpose; going global and the next generation of talent.

The UK’s economic recovery was built on the success of start-ups, but our future prosperity relies upon turning those start-ups into scale-ups. Scale Up Britain will be an opportunity to be inspired and learn from the best in business – giving entrepreneurs the first step towards ensuring they are able to fulfill their ambitions.

WE HAVE A FEW EARLYBIRD TICKETS REMAINING

 
 

Hear more on this from Will Butler-Adams, CEO, Brompton Bicycles; Celia Francis, CEO, Rated People; Giles Andrews OBE, Founder, Zopa; Kresse Wesling, environmental entrepreneur & Co-founder, Elvis & Kresse; Jeff Lynn, Executive Chairman and Co-Founder of Seedrs; Cameron Stevens, Founder, Prodigy Finance, Chris Baker-Brian, Co-founder & CTO, BBOXX; Simon Coley, Co-founder, Karma Cola; Lauren Armes, Founder, Welltodo; Chieu Cao, Co-founder, Perkbox; David Taylor, Managing Director, World First Group

Don't Eat the Rich

For most of history, generation after generation have lived a similar life to that of their parents. If your father toiled the soil, the odds are you would do the same. If your mother married young and had a dozen children, you would do the same. The Industrial Revolution changed this. 

However, it didn’t change it quickly. Even in 1989, wealth in Britain was dominated by the landed gentry. As the latest The Sunday Times Rich List reveals it’s taken 30 years for entrepreneurs to win out.

Here are the key stats:

• 1,000 richest individuals and families have a combined wealth of £724bn — a 10% rise on last year’s figure of £658bn
• 145 billionaires — 11 more than last year
• 141 women in the top 1,000 (14%); in 1989, there were 9 of 200 (4.5%)
• 86 ethnic minorities (8.6%); in 1989, there were 5 of 200 (2.5%)
• 29 (2.9%) landowners; in 1989, 57 (28.5%) were landowners, then the largest single category of wealth
• 5.7% of this year’s list represent wealth passed from one generation to the next

At the top of the Rich List is Jim Ratcliffe – a self-made, British-born industrialist who grew up in a council house in Greater Manchester. Over 20 years, he has amassed a fortune in excess of £21bn.

Shadow Cabinet Office Minister Jon Trickett MP has come out against those on the list: “People have had enough of years of the elite pinching wealth from the pockets of ordinary working people. Labour will overturn the rigged economy that the Tories are obsessed with protecting.”

Trickett is taking the wrong approach. Rather than trying to tear down the hardworking entrepreneurs who deliver products, services, jobs and growth, we should be thinking about how to ensure that the current trend towards meritocracy continues. Short of eating the rich (which would reduce inequality), the best thing the government can do to decrease national inequality with the UK is to increase the stock of houses. The only long-term rise in capital’s share of income is in housing. Global inequality is best addressed by easing mobility

Entrepreneurs need defending. To do this it’s is incumbent on all of us to give a realistic impression of the trials and tribulations involved in starting and growing a business. People aren’t as bothered by economic inequality as many presume – as long as people think that it's fairly earned. What people care about economic unfairness.

Entrepreneurship isn’t anti-worker – quite the opposite. Entrepreneurs are the job creators. Any government intent on improving the lives of its citizens needs to understand this.

 

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Join Us

The Entrepreneurs Network is growing. Over the last year we have substantially increased our network to well in excess of 10,000 entrepreneurs. Through the media, research, the APPG for Entrepreneurship, consultations, evidence to committees and events, our small, hard-working team has an impact on public and political debates and increasingly influences government policy. Also, through a growing number of programmes, we support entrepreneurs in their efforts to start, run and grow a business.

The Entrepreneurs Network doesn't take government funding. Instead, we rely upon individuals and companies that share our goal of making Britain the best place in the world to start and grow a business.

Due to increasing demand at our events and a growing capacity to support entrepreneurs and experts, we are now creating an annual membership of £50.

The key benefits of membership are:

  • Free, priority invitations to our popular events;
  • Regular press opportunities from journalists to help promote you, your expertise or your business;
  • Monthly updates explaining changes to legislation, as well as established government schemes designed to support entrepreneurs.

We are giving one year's free membership to anyone signing up to attend  Scale Up Britain – our biggest and best event – on 12th June in Liverpool (£50). This also gives you access to the whole 12-day festival.

Become a member here

Anyone further along in their business journey may wish to enquire about becoming an Adviser. And feel free to drop me message if you have any questions. 

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Don't Belt Up

Britain's housing crisis is deepening. We need more homes in places where people want to live and work. It's time to build upon the antiquated Metropolitan Green Belt that's throttling London.

If you agree, please consider putting your name to a campaign we are supporting.

This isn't about concreting over areas of outstanding natural beauty, protected habitats, local green space etc. – those would remain protected. We just need a presumption in favour of housebuilding on the scattered plots of Green Belt land within a 45-minute travel time of London Zone 1 and less than a 10-minute walk from a train station. This would free up space for over 1 million new homes.

It's a policy of such moral force that the smartest thinkers from the left, right and centre of British politics are now making the case for it. On their side, they cite strong evidence of its drag on economic growth, sympathy towards the increasing numbers of homeless families, the inability of next generation to afford to buy, or its often misunderstood negative environmental impact. The other side just Nimbyism.

Not In My Back Yard (NIMBY) doesn't cut the mustard. That's why we are getting behind  Siobhain McDonagh, Labour Member of Parliament for Mitcham and Morden, who is campaigning on this issue. The first step is a collective submission to the National Planning Policy Framework consultation and later McDonagh will present an Early Day Motion in Parliament.

Entrepreneurs rely on talent to grow their businesses. A limited presumption in favour of housebuilding on the scattered plots of Green Belt would go a long way to help. Get in touch if you're interested in reading a one-page outline of the submission, with a view to putting your name on a letter supporting it.

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Oh, Boy!

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Understandably overshadowed by the birth of the Royal baby, the weekend saw another royal story: the release of the latest Queen’s Awards for Enterprise, with 230 businesses from across the UK recognised for their contributions. Countries, like companies, succeed by making the most of their competitive advantages, and even Republicans can't deny that the institution of monarchy is an unrivalled asset in global prestige. The Queen's Awards are a way for businesses to tap into this, particularly as they look to export and internationalise.

But don't take my word for it. Francis Toye – founder of Unilink, a previous winner of the Queen’s Award for Enterprise in Innovation and Adviser to The Entrepreneurs Network – is clear about the benefits it has brought his business: "Winning the Queen's Award for Innovation gave a fantastic boost to our staff and a fillip with our customers. We were even lucky enough to meet Her Majesty. One of our customers in the Ministry of Justice said 'we had approval from as high as you can get.'"

Entries for 2019 awards open on 8 May 2018. Find out more

Management Matters
"We have a large tail of businesses which, for a variety of reasons, have struggled to adopt and embrace the new technologies," explains Robert Jenrick MP, the UK Treasury's lead spokesperson on economic growth and productivity, in a Business Insider interview. "Within [any] industry there's a quite a large group of businesses which are slow to adopt new technologies – where there is less automation than some of their competitors in France and Germany – where perhaps management skills and training is lower," he add.

What can be done? The interview doesn't really get into solutions, but here are some ideas. First, the government should incentivise investment by allowing firms to immediately deduct capital expenses. We proposed this in A Boost for British Businesses (p.16) and its one of our key tax policy asks.

We also need to understand the problem better. And that's what we are doing with our research-led Business Stay-Up campaign. As Rob May, founder of ABE, wrote in City AM: "Improving management skills may require a rethink about how business owners learn. Few will have the time, money or inclination to put their business on hold to enter the classroom full-time. Bespoke, accessible, on-demand learning may be better placed to help more people." We are currently reaching out to individuals and organisations who are interested in getting involved in this project – let me know if you would like to find out more.

Third, economist Robin Hanson has a zany suggestion: "Record the full lives of many rising managers over several years, and show a mildly compressed and annotated selection of such recordings to aspiring managers. Such recordings could be compressed by deleting sleep and non-social periods. They could be annotated to identify key decisions and ask viewers to make their own choices, before they see actual choices." Economist Alex Tabarrok has also written about this.

On the subject of videos, check out this inspiring 10-minute documentary produced and directed by Sophie Sandor about the 23-year-old fashion entrepreneur Tianah. It's a powerful defence of enterprise and the beauty and necessity of the profit motive.

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Artificial Intelligence? 

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Yesterday, the House of Lords Artificial Intelligence Committee released a report: AI in the UK: ready, willing and able?
 
There’s a lot to unpack from its recommendations, but what concerns me is what was omitted. In the summary, it states: “Many of the hopes and the fears presently associated with AI are out of kilter with reality. While we have discussed the possibilities of a world without work, and the prospects of superintelligent machines which far surpass our own cognitive abilities, we believe the real opportunities and risks of AI are of a far more mundane, yet still pressing, nature.”
 
What sort of fantasist would believe that we have anything to fear from superintelligent machines? Well, the late, great Stephen Hawking, as well as Elon Musk and Bill Gates, for starters. In focusing on the mundane, the Lords might be missing the existential risk in the room.
 
A dozen AI experts also signed the Hawkins/Musk/Gates letter, and last year a robust survey of AI experts found that on average they believe AI will outperform humans in many activities in the next ten years: translating languages by 2024, writing high-school essays by 2026, driving a truck by 2027, working in retail by 2031, writing a bestselling book by 2049, and working as a surgeon by 2053. There are a few dozen experts who think there’s 100% chance of human-level AI before 2050 and on average researchers believe there's a 50% chance of AI outperforming humans in all tasks in 45 years.

High-level machine intelligence (HLMI), which is when unaided machines can accomplish every task better and more cheaply than human workers may take a while, but it’s short-sighted to dismiss it as not presenting “real opportunities and risks.” The Lords may have set it aside for another report, but if they ignore AI risks entirely they could be failing to understand the most brilliant and dangerous technology the world has ever known.
 
Nick Bostrom, director of the Future of Humanity Institute at Oxford University, has inspired celebrants and critics in thinking through the future impacts of AI. Bostrom believes AI presents an existential risk to humanity, and I think his ideas deserve to be taken seriously. In fairness to the Lords, he was a witness for the report, where he didn't go into the risks, but his Future of Humanity Institute provided written evidence that was explicit about long-term AI safety concerns. The Lords should follow up with the Institute's offer to support policy thinking around this issue.
 
The average AI expert isn’t a doomsayer. The survey cited above finds that most experts think HLMI will be positive, aren't discounting catastrophic risks entirely. When the numbers are crunched, 14% of experts believe that AI might be soon, superintelligent, and hostile.
 
Britain’s most esteemed Lords have got in wrong in the past. Lord Kelvin, the first British scientist to be elevated to the upper house, predicted that heavier-than-air flight was impossible eight years before the Wright brothers proved him wrong. Even Lord (Ernest) Rutherford was wrong about the significance of his own work. The father of nuclear physics, said in 1933: “Anyone who expects a source of power from the transformation of these atoms is talking moonshine.”
 
The House of Lords Artificial Intelligence Committee would do better to keep an open mind on the long-term impact of AI. Perhaps they could chat with their colleague Lord Martin Rees, astrophysicist and co-founder of Cambridge’s Centre for the Study of Existential Risk. As the former President of the Royal Society thinks: “We don’t know where the boundary lies between what may happen and what will remain science fiction.”

Pro Cures

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I've delayed sending out this week's e-bulletin to comply with an embargo announcing that Cabinet Office Minister Oliver Dowden is introducing changes to encourage small businesses to apply for more government contracts. I was recently in Number 10 to hear about these proposals and came away more optimistic than I walked in – which is not always the case after meetings with ministers.

The Prime Minister has written to members of the Cabinet to ask them to nominate a small business champion minister in each department. There's always the risk this will just be cosmetic, but ensuring responsibility is exactly what any well-run organisation – public or private – would do to bring about institutional change. It's not sufficient, but it's necessary.


The Government will also exclude suppliers from major government procurements if they cannot demonstrate fair and effective payment practices with their subcontractors. Late payments can have devastating repercussions down the supply chain, with the European Commission finding that 30% of UK businesses report that late payment had links to subsequent redundancies.

Also, suppliers will have to advertise subcontracting opportunities via the Contracts Finder website. This will reduce the search costs for smaller businesses and through increased competition should improve the quality of subcontractors and with it the quality of procurement projects.

These announcements are all part of meeting the long-established target of procurement spend of 33% with small businesses by 2022. This is now being framed as an "aspiration", which is government language for unattainable. However, I don't think we should obsess over percentages.

What we should care about is further levelling the playing field by reducing the burdens of bureaucracy and regulations, improving the experience of Contacts Finder and ensuring departments have the skills, processes and even a little risk appetite for procuring innovation.

Selling into government isn't for everyone, but for business owners interested in finding out more, Contracts Finder will let you search for opportunities in different sectors, find out what’s coming up in the future, and look up details of previous tenders and contracts.

The Uncommon Good

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Some businesses do more good than others. This will seem obvious when comparing the practices of a company like Enron with that of Lego, but this point goes deeper than culture and management practices. On average, businesses at different stages of their lifecycle have more or less positive impacts upon the world.

A recent report from Octopus Group shows that high-growth small businesses (HGSBs) create 20% of jobs and add 22% of gross value added, driving increased productivity. HGSBs are defined as companies with more than 20 per cent average annual growth over three years, and between £1m and £20m of annual turnover. Between 2015 and 2016, 22,074 HGSBs created 158,000 new jobs, amounting to over 3,000 new jobs every week. The report also reveals that HGSBs are significantly more productive than the average business, creating an additional two months of economic output every year compared to the average UK business.

But it’s not all good news. HGSBs are waning in number and their economic output fell by 9% year-on-year. And critically, 90% of them face some form of skills shortage, this compares to only 17% of the average UK business. Whatever shade of Brexit we end up with – soft, hard or something in between – Britain’s best businesses need talent to grow. HGSBs aren’t principally concerned about low-skilled workers, most, 62%, find it tricky hiring people with the right technical or practical skills.

As Chris Hulatt, co-founder of Octopus Group, explains: “It’s abundantly clear that, despite being small in number, high growth small businesses are disproportionately important to our economic growth, especially as Britain looks to a future outside of the European Union. We need to ensure that they are given every opportunity to flourish and grow. By championing these businesses and implementing the right policies to unlock their growth potential, they can continue to boost employment and productivity across the country.”

More of HGSBs might well be key to increasing UK productivity, which remains below its pre-financial crisis trend. And as Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy Committee, says in reference to the report: “High growth small businesses are really punching above their weight across the country and it’s great to see the value they provide to the UK economy. Productivity provides the basis for long-term, sustainable growth and improvements in living standards, and by supporting these businesses we can close the productivity gap and increase wages.”

I couldn't agree more. Read more about the report's policy suggestions in my Forbes article.

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Female Founders Forum Report 2018 - Press Coverage

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On 15th March we launched our annual report on female entrepreneurship Mentoring Matters with the support of Barclays. Using the latest data from Beauhurst, the report highlights the equity funding gap in the UK. The key figures from the report include:

  • In 2017, the total amount of capital raised by entrepreneurs almost doubled. Yet the proportion invested in businesses with at least one female founder decreased from 14.9% in 2016, to 8.5% in 2017;

  • Between 2016 and 2017, the total amount of funding raised by male-led companies increased by 55%, compared to a decrease of 0.1% for those with a female founder;

  • Yet the highest amount raised by a company with at least one female founder almost tripled in 2017 compared with 2016; this was Monica Kalia, Co-founder of Neyber, which raised £143.5m;

  • The total number of recorded deals for companies with at least one female founder increased from 775 to 901 between 2016 and 2017.

The report also serves as a practical aid for entrepreneurs: we interviewed some of the UK’s most successful entrepreneurs for their top tips on leadership, innovation, mentoring and pitching. Please do share it among your networks!

One of our recommendations that appeared in both the 2017 and 2018 reports is that the media should promote female role models through their publications. On International Women’s Day The Telegraph launched a Women Mean Business campaign which aims to encourage and promote female entrepreneurship. As part of The Telegraph campaign, I’ve written about why female entrepreneurship is the last piece of the puzzle for female empowerment and Annabel, our Editor, has written about our report. We were also on the front page of The Telegraph on 15th March, with Olivia Rudgard reporting on how investment in women's businesses has fallen.

I appeared on the BBC Daily Politics show stating that female role models not quotas are the way to bridge the gap. Forbes reported twice on Mentoring Matters, writing that funding for female entrepreneurs in the UK has taken a tumble and about female only accelerators . Also Insider reported that start-up funding for women “remains stubbornly low”.

I wrote for CapX on why the equity funding gap is more worrying than unequal pay. I also authored an article for ConservativeHome on why the Government should champion female entrepreneurship. And Annabel wrote for the Yorkshire Post on why Britain will benefit with more female entrepreneurs.

Plenty has been written on last year’s report as well over the past few weeks with our data featuring in a Telegraph letter to the Government, which over 200 business leaders and MPs signed to urge Government to boost female entrepreneurship in Britain. Findings from Untapped Unicorns was also mentioned in a Telegraph interview with Dragon’s Den star Jenny Campbell. And another article around the funding gap.

After a day of plenty of press coverage we celebrated the launch of the report with an evening reception at Blooms London, with delicious food from female-led businesses Foraging Fox, ChickP and Well&Truly, as well as drinks Karma Kola and The Urban Cordial.

A big thank you to everyone involved in the project – particularly Barclays. We hope to see some of you at our future mentoring events which will focus around pitching and leadership. Please sign up for our e-bulletin for the latest information on these events.