Chancellor Rishi Sunak opened yesterday’s Mais Lecture by condemning Russia’s unprovoked aggression: “When the sovereign freedom of one democratic nation is threatened, wherever they may be in the world, democracy everywhere is challenged.” Spot on.
The Mais Lecture is an annual event at Bayes Business School (formerly Cass), where Prime Ministers, Chancellors, Governors of the Bank of England set out their economic vision.
Sunak gave us a flavour of what to expect in his upcoming Budget, but it will also be seen by many as his pitch to be the next Prime Minister. And that pitch is “a future economy built on a new culture of enterprise.”
Sunak praised free markets as a machine for innovation and growth: “The arc of human history has taught us that more than any other economic system, the free market provides the best possible route to achieving the most happiness and security for the greatest number of people.” As is almost a tradition for politicians, he then points out the free market’s limits – whether that’s the need for a safety net, its impact on social bonds, and externalities like climate change. All pretty standard stuff.
According to Sunak the biggest challenge the free market faces today is where new growth will come from – again, all pretty standard stuff. Most economists and think-tankers have been sounding the alarm on UK productivity for years.
After a lot of platitudes, however, Sunak hinted at something more interesting and concrete.
He has three priorities:
1) On capital investment, Sunak refers to the growth we experienced in the 19th and 20th centuries: “Even in the decade before the global financial crisis, capital deepening grew UK productivity by just 0.4pp per year, less than half the OECD average.” As he explained, today capital investment by UK businesses averages just 10% of GDP, considerably lower than the OECD average of 14%.
And he offers a diagnosis: “An analysis of the Net Present Values of different countries’ tax treatment of long-lived capital assets like plant and machinery shows that despite the UK’s highly competitive headline corporation tax rates, the overall tax treatment provided for capital investment is much less generous than the OECD average.”
The Chancellor’s priority will thus be to cut taxes on business investment, which is something we have long called for. In fact, our Research Director Sam Dumitriu was among the very first in the UK to push for expanding capital allowances, and will soon release a report with another think tank that I expect will be similarly influential. Watch this space.
2) On improving technical skills, Sunak is particularly concerned with adult education. Just 18% of people aged 25-64 hold vocational qualifications. This is a third lower than the OECD average, with UK employers spending just half the European average on training their employees.
Sunak thinks we need to reform the complexity and confusion in the current system. There are currently 4,000 qualifications at level 3, and over 3,000 at levels 4 and 5. But while confusion and complexity are no doubt a problem, are they really the main problem for employers? Sunak hints that the Apprenticeship Levy might also need reform, which we’ve called for before, but I’m sure there are some smart entrepreneurs and experts in the adult education space who have some ideas on what more can be done. If so, get in touch.
3) Last, and best, the Chancellor lauds the importance of innovation (I would suggest reading this section in full). Citing Paul Romer’s insight on the non-rivalrous nature of ideas and the $400 bet between Professor Robert Gordon and Professor Erik Brynjolfsson on whether we’re still innovating, Sunak comes down on the side of the latter, taking the view that Artificial Intelligence is a general-purpose technology, like steam power, electricity, and information technologies.
I think this is correct. And we put out a paper by former Office for AI Adviser Séb Krier, setting out exactly how the UK can be the place in the world for AI.
Ultimately, Sunak acknowledges that differences in productivity explains almost all of our economic gap with the US. He claims Brexit could give us the freedom to improve our regulation of technology, life sciences, financial services and innovation (more on that below), and claims that the Government is already helping with British Patient Capital, the Future Fund, tax reliefs, and the Help to Grow programmes, as well as by reforming Solvency II, listings rules, and the charge cap to unlock pensions. Mostly things we have called for or supported, but we think we will need much more than this to close the gap with the US. We’ve got a host of reports in the pipeline to set out exactly how.
We were also very pleased that Sunak cited our research, when he said that half of our most innovative companies have an immigrant founder. But actions speak louder than words. Given the Investor Visa has been scrapped and the Innovator visa is under threat, we won’t be counting chickens any time soon.
Sunak is also going to look into better incentives for R&D. As he acknowledges, self-financed business R&D as a percentage of GDP is less than half the OECD average, and while other nations have been improving their R&D investment rates in recent decades, that in the UK has stayed flat or even fallen. In addition, business spending on R&D amounts to just four times the value of R&D tax relief, while the OECD average is 15 times. So I think we can expect some more targeted tax breaks for entrepreneurs looking to invest.
The speech isn’t inherently Conservative and certainly isn’t conservative with a small ‘c’, so we hope he’ll be reading about the way of the future.
Mugwump
The Substacker Mugwump has something interesting to say about the benefits of Brexit. #FBPE types shouldn’t be overly concerned. Mugwump lives up to the meaning of their sobriquet – a person who remains aloof or independent, especially from party politics.
While they think Brexit has made us poorer, compared to what we could have been, this only makes the need for ambitious policies more necessary – policies like planning reform (see our recent paper for what this could look like, and Ryan Bourne’s article mentioning it on ConservativeHome.)
Mugwump was inspired to write following the Cabinet Office’s “embarrassing” The Benefits of Brexit policy paper. Embarrassing, because it is a hodgepodge of vacuous statements and things we could already have done inside the EU. As well as things that are objectively bad for growth, like ending free movement.
So what can actually be done that will meaningfully offset some of the damage of Brexit? Mugwump puts forward a non-exhaustive list of 12 ideas, including joining the Trans-Pacific Partnership (TPP), unilaterally recognising EU and non-EU standards, auctioning airport slots, and reforming GDPR (although this will likely still have to be done in negotiation with the EU).
Although Mugwump isn’t particularly optimistic about the potential for his wishlist happening – whether for political feasibility or the risk of retaliatory measures from the EU – their realist approach is a whole lot better than the Cabinet Office’s waffle.
Home Truths
The Home Office is having a bit of a mad one.
Yesterday, without warning, it scrapped the UK’s Tier 1 Investor Visa. While the government has been right to scrutinise the route, its failures have been due to the Home Office not properly regulating and overseeing the route. There was an opportunity to reform it to support entrepreneurs – instead, they’ve thrown out the baby, bathwater, the bath, the kitchen sink and their toys out of the pram.
The Home Office is also currently looking at the Innovator Visa, the main route for entrepreneurs. Given yesterday’s announcement and various rumours, I’m pretty sure they’ll mess that up too.
That’s not all. Earlier in the week the FT revealed that the Home Office is planning to demand tech companies block ‘legal but harmful’ posts as part of the Online Safety bill. While this might be aimed at the likes of Google and Facebook, it would hit thousands of tech startups that host user-generated content online, including travel review sites and food delivery marketplaces, as well as personal messages.
Camilla de Coverly Veale of Coadec has written about why the proposals risk crippling the UK’s internet economy. As she notes, by the Government’s own estimates the new regime will affect 24,000 businesses, the overwhelming majority of which are small and micro platforms.
But this is just the tip of the iceberg. Coadec also has a report out today on the wider threat of the Online Safety Bill. For example, businesses would be required to proactively monitor user-to-user interactions, which would require data collection, storage and use in explicit breach of both the UK and EU GDPR’s standards. This would end our data adequacy status with the EU, which allows the free flow of personal data between jurisdictions.
The Government’s own estimates suggest that a loss of data adequacy would cost £1.4 billion in compliance costs, and Coadec estimates that all the proposals add up to a crippling £2.5 billion a year. This doesn’t just put us out of step with the US and Europe – it puts us on another planet.
I’m starting to think the New Statement’s John Elledge might be right. Maybe it’s time to abolish the Home Office.
Foundational Thinking
Regular readers will already know about Strong Foundations – our case for why the UK’s housing shortage is denting our entrepreneurial ambitions.
Over 60 of UK's most ambitious entrepreneurs backed it in a letter in The Telegraph, which argued that talent is being priced out of our most productive cities. As author Aria Babu writes in City AM, Britain’s productivity has been battered by the scarcity of affordable homes. She builds on these thoughts in CapX, explaining why there is something special about clusters, and why they’re essential to the levelling up agenda:
“If we want to level up, then policymakers have to understand and exploit the economics of clusters – not ignore them. Part of the reason the UK’s left behind regions are poorer is that we have ignored these truths. Many of our cities lack adequate infrastructure and are badly connected, which means they function less like a city than a collection of small towns. Leeds, for example, is the largest city in Europe without a metro system, meaning potential benefits of agglomeration are remaining unrealised. One stark statistic illustrates this well: in the UK only 40% of people who live in big cities can reach their city centre within half an hour. In Europe 67% can.”
Aria was also interviewed on GB News about it, I wrote about the report for Forbes and the New Statesman picked up on Aria’s paper in reference to Kirstie Allsopp’s embarrassing interview with the Sunday Times.
So what next? There are opportunities in the upcoming Levelling Up Bill for some of the recommendations in the report. Namely: instituting Street Votes, liberalising Green Belt rules, building more public transport, making it easier to convert properties between different use classes, allowing high quality micro home projects, and trialling community land auctions.
You can still back the report here, which will take a few seconds. And spread the word by retweeting this Twitter thread, sharing through other social media, or just forwarding this email on to others.
Calling Female Founders: Wales & Southampton
We aim to bridge the gap between entrepreneurs and policymakers. We do this on many levels but the bluntest, and sometimes most effective approach, is simply putting smart entrepreneurs in the room with politicians.
To that end, as part of our Female Founders Forum we run with Barclays, we have a virtual event with Virginia Crosbie MP next week from 12.30pm to 2pm. It is focused on Wales, so if you’re based there, do business there or have an interest in the country, this is for you. Just let Katrina know if you want to come and she will send a calendar invite.
Next month, we have Rt Hon Caroline Nokes MP for an in-person roundtable in Southampton. Caroline is chair of the Women and Equalities Committee, which examines the work of the Government Equalities Office and holds the Government to account on equality law and policy. This is our first event in Southampton, so we could really do with your help in sharing with entrepreneurs in and around the city. Once again, just let Katrina know if you want to come and she will send a calendar invite.
Sign up for Philip’s Friday newsletter here.
Sixty Entrepreneurs Back Open Letter on Housing
To coincide with the launch of our new paper Strong Foundations, we have an open letter in today’s Telegraph endorsing the report and pushing for more action to make it easier to build enough homes in the places where they are most needed.
You can read it below:
Britain’s start-ups are being held back by the high cost of housing and office space.
Talent is priced out of our most productive cities. Londoners spend nearly 40 per cent of their income on rent. And, after paying extra for talent because of higher housing costs, British businesses are punished again through some of the most expensive office rents in the world.
The United Kingdom has many strengths for entrepreneurs: world-class universities, London’s financial hub, and the highest venture-capital investment in Europe. But Berlin, Paris and Amsterdam become more inviting as housing continues to get more expensive in London, Oxford and Cambridge. Silicon Valley provides a cautionary tale, where insufficient housing has led to an exodus of founders and investors.
But there is cause for optimism. Simple tweaks to planning legislation could solve much of the problem. A new report from the Entrepreneurs Network sets out a range of reforms that could make millions of new homes available.
It is vital that the reforms are included in the upcoming levelling up bill. We urge Michael Gove, the Secretary of State for Levelling Up, Housing and Communities, to consider seriously the pivotal role this bill could play.
List of signatories:
Matt Clifford
Entrepreneur First
Emma Jones
Enterprise Nation
Simon Woodroffe
YO! Company
Philip Salter
Founder' The Entrepreneurs Network
Dr Dylan Jones-Evans
Director, Enlli Associates
Andrew Dixon
Director ,ARC InterCapital Ltd
Jessica Mendoza
CEO, Monadd
Dr Cristiana Banila
Founder & CSO, Mitra Bio
John Hassard
Director EnviroMission Ltd
Cordelia Meacher
Managing Director, FieldHouse Associates
Lorraine Thomas
Founder, View From My Window
Anne-Laure Le Cunff
Founder, Ness Labs Ltd
Alex Hanson-Smith
Co-Founder & CTPO, inploi
Giovanna Forte
CEO, Forte Medical Limited
Maria Tanjala
CEO FilmChain
Marc Figueras
Director KeyNest
Simon Labahn
Co-Founder & CEO, Spotlight
Richard Mabey
CEO, Juro
Peter Francis
Co-Founder, FluidStack
Rose Tan
Founder, PlayThru
Lorna Armitage
Co-Founder & COO, CAPSLOCK
Erika Brodnock
CEO, Optimum Health
Maiko Schaffrath
Founder, Impact Hustlers
Sebastien Krier
Director, Dataphysix Ltd
Henry Whorwood
Head of Research & Consultancy, Beauhurst
Tommy Long
Co-Founder, JDLT
Paul C Cheshire
Professor of Economic Geography, London School of Economics
Sahil Sethi
CEO, Maji
Aileen McDonnell
CEO, B4Box
Alison Surtees
Co-Founder, Future's Venture
James Frewin
Founder, OCTOBER®
Elle Sharman
Founder, Swan
Jevan Nagarajah
Founder & CEO, Better Dairy
Camin McCluskey
Co-Founder & CTO, Telescope Analytics
Favour Mandanji Nyikosa
Co-Founder & CTO, Augmize
Serdar Paktin
Founder, pakt
Dr Filip Auksztol
CEO, Quantum Boost Ltd
Stuart Johnson
Founder & CTO, Simple Construction Software
Ashvin Prabaker
Founder, Stealth Startup
David Murray-Hundley
Co-Founder & CEO, Pario Ventures
Ian Merricks
Managing Partner, White Horse Capital
Sam Gordon
Founder, Gordon & Eden
Ross Williams
CEO, Venntro Media Group
Guy Tolhurst
Group CEO, Indagate Group
Andrew Evans
CEO, Smart Pension
Karina Robinson
CEO, Robinson Hambro Ltd
Russ Shaw
Founder, Tech London Advocates & Global Tech Advocates
Stuart Lucas
Executive Chairman, Asset Match Limited
Jack Bartlett
Co-Founder, acceler8
Sharief Abdel-Hadi
Co-Founder & CEO, Apricot
Mark Brownridge
Board Member, EISA
Rajeeb Dey
Founder & CEO, Learnerbly
Alison Cork
CEO, Alison at Home
Sean Ramsden
Founder & CEO, Ramsden International
Charis Sfyrakis
CEO, Algomo
Lance Forman
Owner, Forman & Field
Michael Nabarro
Co-Founder & CEO, Spektrix Ltd
Sandip Gangakhedkar
Co-Founder & CTO, Imperium Drive
Alastair Paterson
CEO, Digital Shadows
Apurva Chitnis
CEO, Sidetrack
Meri Beckwith
Co-founder, Lindus Health
Dana Denis-Smith
CEO, Obelisk Support
Ben Southwood
Senior Fellow, Create Streets
Daniel Pryor
Head of Research, The Adam Smith Institute
John Myers
Founder, London YIMBY
Sun Don't Shine
In his new role as Minister for Brexit Opportunities and Government Efficiency, Jacob Rees-Mogg has called on Sun readers to write to him to tell him about “any petty old EU regulation” that he should scrap.
In the letter, Rees-Mogg rightly applauds the Vaccines Taskforce, and accurately identifies possible regulatory reforms around procurement (we'll have a paper out on this soon), data and medicines. However, like the Red Tape Challenge before it, this call to action will probably fail to get good ideas.
Polly Mackenzie from Demos has a Tweet thread explaining why. It covers a few different angles – a key one being the inability of people to disentangle who’s to blame for a particular regulation. She brings up the example of who is to blame for making you fill out a bank form. The bank? The FCA? The EU? International money laundering rules? Parliament?
It’s a fair point, but the people writing to Rees-Mogg don’t actually need to do the analysis. It should be the job of government. Instead, I think the real problem is that from inside the system it’s difficult to know that things could be better.
Of course, organisations like ours can act as a conduit for good ideas. For example, drawing on the work of Jan Rosenow of the Regulatory Assistance Project and conversation with entrepreneurs, Eamonn Ives argued in our comprehensive Green Entrepreneurship report with the Enterprise Trust that the Energy Performance Certificate (EPC) ratings were biassed against environmentally friendly technologies, like heat pumps. This week, much to our delight, it has been announced that EPC ratings will stop penalising heat pumps.
It’s a small victory, but we’ve had quite a few of those over the years, and aren’t short of more ideas.
Just this week Alec Stapp’s observed that the “UK requires merging firms to mail physical documents to every single one of their shareholders”, following news that a billion pound merger was delayed because they can’t find enough paper to mail out more than 120 million pages of docs.
Stapp’s observation points to a way I think governments could meaningfully engage beyond think tanks and lobby groups: by talking with people who have experienced how other countries do things better.
I’ve bored regular readers enough about digital government in Estonia, but it’s true of many policy areas and many countries. While copying other countries might not be the post-Brexit vibe Rees-Mogg is looking for, if he or a successor decide to go to the public for ideas it would be worth asking those that have experience beyond our borders – whether they are (or have been) immigrants or expats.
Of course, you don’t need to have experienced another country to know how to spot these things – in the US, Flexport founder and CEO Ryan Petersen just used common sense to solve L.A.'s Shipping Jam, pointing out that they should end restrictions on stacking empty containers more than two high – but by narrowing the question Rees-Mogg would get more considered replies.
As Mackenzie argues, the Red Tape Challenge just mobilised lots of activists calling for regulations to be maintained that the government had no intention of changing. Asking a question where respondents are forced to actually look for meaningful improvements – even if it’s based on practical experience rather than intimate policy knowledge – could help government decide where to focus.
What Are The Odds?
A decade ago the Royal Statistical Society (RSS) found that only 40% of MPs got the following question correct: “If you toss a coin twice, what is the probability of getting two heads?”
They asked the same question to the current Parliament. This time round, 52% gave the correct answer, so there has been some improvement, but the result will still be disconcerting for many.
Some will use this as a stick to bash MPs with. But that won’t solve anything. We need to focus instead on making it more appealing to be an MP and we should also think of ways MPs can continue to learn while in the job (even if it’s things that they probably should have picked up in school).
MPs spend a lot of their time talking to people who are more expert in the thing being discussed than they are. They can’t possibly be expected to know everything and the only way to get through it is to bluff. This is why many MPs, even in conversation, speak as though they’ve been asked to give an impromptu speech, rather than have a proper discussion where the goal is learning and solving problems.
I don’t have all the answers though – just like the MPs who the RSS surveyed.
As a Bee
We have so many events coming up that it’s easiest just to share them in a cleaner format:
– Small business owners should register their interest to join Emma Jones MBE for a discussion on access to finance on 21 February from 4pm to 5pm. Your thoughts will feed into our Small Business Forum project: Access all Areas.
– Entrepreneurs and policymakers are welcome to join James Perry, founder of BCorp, who will lead a virtual discussion on non-financial reporting on 24 February from 10am to 11am as part of our Green Entrepreneurship Forum.
– Female founders from Wales (virtual, 24 February), London (in-person 10 March), or the South West and South Coast (in-person 24 March) should get involved in our Female Founder Forum roundtables.
– Anyone interested in levelling the playing field for underserved founders will want to sign up for our virtual panel discussion on 3 March from 4pm to 5pm. This part of our Inclusive Innovation Forum.
– Tech entrepreneurs will want to join the founder Dinesh Dhamija and other entrepreneurs for a roundtable breakfast discussion on the future of immigration.
– MPs, Peers and sharing economy entrepreneurs will want to pop into the House of Lords on 15 March from 3.30pm to 5pm for a spot of afternoon tea.
– Patrons, Advisers and the founders of high-growth businesses are welcome to join us for a Private Entrepreneurs’ Dinner on 22 March 2022 from 7.30pm to 9.30pm to discuss the new Step-Up Coalition.
Time to Build
“Western housing shortages do not just prevent many from ever affording their own home. They also drive inequality, climate change, low productivity growth, obesity, and even falling fertility rates.” It’s a bold claim, but I think it’s spot on. So do many others from across the political spectrum, for whom it is the biggest policy failure of our time.
Central to the damage is the impact on innovators and entrepreneurs, who are held back by the high cost of housing and office space – even if many are unaware.
Talent is priced out of our most productive cities, threatening the position of the UK's entrepreneurial ecosystem. British startup employees have to face long commutes, over-crowded conditions, and lower disposable incomes. They are discouraged from taking entrepreneurial risks, and the growth of their businesses is curtailed. They struggle to hire and retain the best and brightest.
We want to change this, and are optimistic that we can. There are some great ideas already out there, some of which are on the cusp of legislation, such as Street Votes, which I’ve written about before.
We were inspired by what’s happening in the US. And certainly, Silicon Valley provides a cautionary tale. An inability to build enough homes, to tackle excessive rents, has led to an exodus of founders and investors. There is also a policy backlash against this in America and we want to lead the business case here.
We have a paper ready to launch making the case for building more houses and office space – and we want you to publicly back us.
First, read our short letter to understand what we want.
Second, if you agree that fixing housing policy would help your business, then we encourage you to take less than a minute to sign our open letter (which will be published in a newspaper).
If you have any questions or would like to read the paper (under a strict embargo), get in touch with my colleague Aria Babu, who has written the report.
Here Comes
There is no new thing under the sun. Including the Levelling Up missions, which look suspiciously similar to Theresa May’s Industrial Strategy missions. It’s not just 332 pages of cut and paste from the former government and Wikipedia, though there’s some of that.
While Leeds City Council leader James Lewis was “disappointed” that "there were more mentions of Medieval Italy than there were of Yorkshire in the levelling up paper," and while there were only a couple of mentions of “entrepreneurs”, there’s still much to interest businesses.
The 12 missions, if achieved by 2030 (as planned), would be good for British entrepreneurs. But that’s a very big “if”. After all, it would be something of a miracle if whoever is in power will still be using the term “levelling up” by then. That said, provided they’re rebranded, they’re reasonable, and, crucially, quantifiable goals.
The most relevant mission to entrepreneurs is the second one: “By 2030, domestic public investment in Research & Development outside the Greater South East will increase by at least 40% and at least one third over the Spending Review period, with that additional government funding seeking to leverage at least twice as much private sector investment over the long term to stimulate innovation and productivity growth.”
The Department for Business, Energy, and Industrial Strategy (BEIS), for example, has committed to invest at least 55% of their domestic R&D funding outside the Greater South East by 2024/5.
The White Paper also announces three new Innovation Accelerators, which will be major place-based centres of innovation, centred on Greater Manchester, the West Midlands, and Glasgow City-Region: “These clusters of innovation will see local businesses and researchers in these areas backed by £100 million of new government funding to turbo-charge local growth, learning from the MIT-Greater Boston and Stanford-Silicon Valley models.”
Despite some positives, Centre for Cities concludes that The White Paper lacks the funding to deliver and doesn’t offer a plan beyond 2030. The Joseph Rowntree Foundation considers it a valuable start that falls short, while Policy Exchange is encouraged by the innovation policy.
It's certainly worth a skim – if only for the early mention of Thebes 1360 BC.
(Incidentally, one nifty thing to come out of the levelling up project is this subnational indicators explorer, which allows you to compare your area with others.)
Danker Schön
It’s great to see the CBI making bold demands of government, such as replacing the temporary super-deduction with a permanent 100% tax deduction for capital spending, and establishing an Office for Future Regulation to support a more dynamic framework for post-Brexit Britain. If you have an hour to spare, it’s worth watching Tony Danker’s speech and interview with the Centre for Policy Studies.
Access All Areas
I’m delighted to announce that we’re partnering with Enterprise Nation on a new project: Access All Areas. Led by Emma Jones CBE, the incredible founder of Enterprise Nation, and guided by a panel of around 30 small business owners, over the course of the year we will produce four briefing papers on key things we think small businesses need better access to: finance, people, markets, and government.
We’re busy building the panel of Members for our Small Business Forum ahead of our first virtual roundtable on 21st February. We have a couple of places left, so if you’re a small business owner with a passion for policy, drop us an email with details about you and your business and we might be able to squeeze you in.
Inclusive Innovation Forum
We’ve wanted to undertake a project supporting ethnic diversity in entrepreneurship for quite a while. But we’ve held off until now in order to do it properly. For context, during the pandemic we hosted a few virtual roundtables on the topic, and while the speakers and attendees were great, the feedback was that we needed to deliver more than just a platform for an interesting conversation.
A subsequent interview with Sharon Vosmek, CEO of Astia, cemented this view. In her words: “your job is to convene the conversations that lead to investment; not lead to more coaching; not lead to more sponsoring; not lead to more hand waving. 92% of all VCs are white male. It’s that simple. And when you have that profound disparity, or what I’ll call that consistent a phenotype, you should have no expectation to achieve any sort of result other than what we’ve seen in venture: that it invests in white men of a specific phenotype.”
Today we’re launching something substantive, working with Morgan Stanley on the Inclusive Innovation Forum.
It will bring together some of the leading ethnic minority entrepreneurs, investors and policy experts in the UK and Europe, as well as a wider network of the most ambitious, high-potential entrepreneurs and people supportive of ethnic minority entrepreneurship.
But crucially, it’s also a project to find entrepreneurs for Morgan Stanley’s Multicultural Innovation Lab, which is expanding to the UK. It’s offering £200,000 to each participating company in exchange for an equity stake. The 51 companies that have participated in the Lab to-date have already raised over £100 million.
The project will be led by the incredible Anisah Osman Britton, who has dedicated her career to ensuring that building the future is an inclusive venture. Anisah is the director of storytelling at alternative VC fund Calm Capital Fund and a startup life reporter at Sifted. She also founded 23 Code Street.
So what’s next? Subscribe to our new Inclusive Innovation Forum newsletter to be kept up-to-date with what we’re up to, and forward this on to entrepreneurs, investors, or policy experts that we should get involved.
Speak for Yourself
We already have lots of events in the pipeline, and in the coming weeks we’ll be announcing lots more. With so many speaking opportunities, we want to hear from you if there are any issues related to entrepreneurs that you wish you could talk about with our incredible network of entrepreneurs, experts and policy makers.
For example, we’ll be running roundtables with the immigration department of Kingsley Napley on the impact of immigration rules on businesses, and co-hosting an event in The Shard with The Office Group on how to attract talent in a disrupted landscape. We also have our ongoing Female Founders Forum with Barclays and our Green Entrepreneurship Forum with Mishcon de Reya. But there will be much else besides.
Whether online or in-person, speaking at one of our events doesn’t always require a lot of preparation. One format that works well is to have ‘conversation starters’, which just means you can talk off-the-cuff about an issue impacting your business or your area of expertise.
As well as getting prominence for you and your business, speakers at our events often give us insights for policy research and for our discussions with the government.
If you’re keen to get involved, just get in touch with our events team, letting them know a little about yourself and what you would like to talk about. Bullet points will be fine. We’ll read them all and we’ll be in touch if and when an opportunity arises.
On the Horizon
I don’t normally share job opportunities, but this one is too important to miss. The Regulatory Horizons Council (RHC) team is looking for its next Chair to manage and lead the Council.
The RHC is an independent expert committee that identifies the implications of technological innovation, and provides the government with impartial, expert advice on the regulatory reform required to support its rapid and safe introduction.
I’ve been very encouraged with the work they’ve done so far on drones, genetic technologies, medical devices and fusion energy, which are well worth reading.
Find out more about the role here.
Take it for Granted
What's wrong with the way the UK government funds startup R&D? This is the question my colleague Sam Dumitriu tackles in his latest substack, and if the experience of a business trying to disrupt clinical trials is anything to go by, the answer is “quite a lot”.
I’ll focus on two problems, but it's worth reading his article in full. First, the business in question, Lindus Health, was marked down because it failed to consider job losses due to automation. And to make matters worse, InnovateUK noted that it failed to “consider the possible negative effect of loss of jobs … when companies choose [them] over their previous contractor to run trials.”
As Sam writes: “This strikes me as exactly the wrong way to think about job creation at a time when many businesses are complaining about worker shortages. Suppose Henry Ford was applying for a grant and having listed all the potential economic opportunities cars could create, was marked down for failing to consider job losses in the horse-drawn carriage sector.”
Strange criteria apart, however, there are deeper problems at play. Co-founder Meri Beckwith told Sam that they hired a professional to prepare their application, “as there seem to be loads of unwritten rules/expectations, and [we] assumed an agency would know what these were.” But “a lot of their feedback was 'more detail needed on x' which seems harsh given we stuck to just within the word limits for each answer. Between the word limits and given that this is inherently speculative, we are not sure how anyone could provide more detail.”
This is a major source of waste. As Sam explains, the money wasted on unsuccessful applications can be staggering. A study published in Nature found that €41 million in salaries goes into writing up applications for a call with a total value of €226 million.
The government and research agencies are well aware of the problem. It’s the logic behind the Advanced Research and Invention Agency (ARIA). But as we discussed in The Way of the Future we can go beyond the DARPA model, adopting a range of funding mechanisms to accelerate the pace of innovation.
What we need is experimentation – whether that’s experimenting with a lottery model that cuts bureaucracy and biases like the Swiss National Science Foundation (SNSF), or longer-term grants in the form of a ‘Horizon Research Fellowship’ along the lines of the Howard Hughes Medical Institute (HHMI) or BP’s Venture Research Unit.
Part of the Progress
For those interested in US policy, friends of The Entrepreneurs Network Caleb Watney and Alec Stapp have launched a new think tank: Institute for Progress.
They’re focusing on biosecurity, emerging technology, immigration and metascience, and already have lots of pithy papers on their website. Many have relevance for the UK. Check out how to reduce recidivism with prison-tech, create an AI testbed for government, or create advance market commitments and prizes in pandemic preparedness.
Expect Beta
The Government’s Help to Grow Digital scheme launched this week offering funding for SMEs to purchase software to boost their productivity. I appreciate that it’s in beta, but the website is clunky and error prone.
That’s not the only thing we think is wrong. Small businesses with fewer than five employees are ineligible for the scheme, and the software available is limited to a few narrow categories. Even within the narrow categories there are currently very few products to pick between.
The Sign for Small campaign is looking to address some of these issues, which is why we’re backing it. If you are of a similar mind, take two minutes to sign it today.
Sign up to our newsletter here.
The License Raj and Grant Funding
Are unnecessary processes, rules, and general bureaucracy getting in the way of entrepreneurship and innovation?
It's been a theme of two things I’ve written over the past week. For the Sunday Telegraph, I looked at the UK’s growing License Raj and how despite deregulatory rhetoric there’s been little done to reduce the burden on business.
In my piece, I set out seven laws which prove this administration isn’t a deregulating one. You can read it here.
As well as looking at regulation, I also looked at the hoops startups have to jump through to access Innovate UK grant funding.
My post for my email newsletter Notes on Growth looked at Innovate UK’s Smart grants through the lens of a rejected proposal. You can read it here.
Why AI means IP reform is inevitable?
Abundance Agenda
History has a lot to teach us. But the most important lesson is so obvious we take it for granted: progress is possible.
If given a time machine, I would love to visit 5th century BC Athens, Renaissance Italy, and Paris in the 20s, but it would be mad to want to live in those times. Even if you were lucky enough to be wealthy (even the wealthiest) life in the past was objectively worse.
As Our World in Data reveals, until around 1800 today’s best-off places were as poor as today’s worst-off places, and child mortality was even worse. Finland, for example, is now one of the healthiest and richest places on the planet. Two centuries ago it was as poor a place as today’s poorest countries, with a child mortality rate much worse than any place in the world today.
This is both a privilege and a responsibility. It’s a responsibility to ensure that those living in the world today can live better lives – in Somalia the mortality rate for children under 5 is 12.7%, while in Iceland it’s 0.12%; in Sierra Leone, life expectancy at birth is 52 years while in Japan it’s 84.1. And we also have a responsibility to future generations that progress continues.
Derek Thompson gets it. Writing in The Atlantic he makes a brilliant case for an abundance agenda. His focus is on America – criticising its failure in restricting everything from doctors, housing, and university places, to infrastructure projects, visas, and nuclear power plants – but the UK has many of the same, and a few different, problems. (Interestingly, Thompson praises the UK in the article for having ordered so many lateral flow tests.)
This agenda runs counter to Cheems Mindset. An all-too-prevalent way of thinking among policymakers, who too regularly dismiss ideas on the basis that it cannot be done, or would be hard to do. As Thompson concludes: “The abundance agenda aims for growth, not because growth is an end but because it is the best means to achieve the ends that we care about: more comfortable lives, with more power to do what we want, with more time devoted to what we love.”
Critically, this is something that can unite people with different political instincts: “This agenda would try to take the best from several ideologies. It would harness the left’s emphasis on human welfare, but it would encourage the progressive movement to “take innovation as seriously as it takes affordability,” as Ezra Klein wrote. It would tap into libertarians’ obsession with regulation to identify places where bad rules are getting in the way of the common good. It would channel the right’s fixation with national greatness to grow the things that actually make a nation great – such as clean and safe spaces, excellent government services, fantastic living conditions, and broadly shared wealth.”
As a think tank, to-date we’ve done a good job at devising, championing and helping enact policies to make the UK more entrepreneurial. But I think we could do a better job of articulating this vision – and making the case for why others, including policymakers, should be as ambitious as we are. After all, entrepreneurs are giving us a lot to be optimistic about.
To paraphrase Thompson, we don’t just want to produce a laundry list of marginal improvements, but a defence of progress and growth.
Female Founders Forum
The bad news: "In 2020, lockdowns and school closures negatively impacted female entrepreneurs far more than their male counterparts. Women were more likely to lose their jobs. Research from America found that women were more likely to be working at the kitchen table, where they were likely to be disturbed by family members, while their male partners took the home office. With schools shut and working home becoming the norm, the number of chores at home increased, and this burden fell disproportionately on women who also had to homeschool children and care for older relatives. During lockdown, British women have taken responsibility for two-thirds more childcare than men and they have also cut down their paid hours. Before the pandemic, mothers worked 80% of the hours that fathers did. During lockdown this dropped to 70%.
The good news: "Women are half as likely to find working from home difficult. Remote work offers many advantages in terms of flexibility, which is very useful in the context of managing childcare responsibilities. Instead of having to pay for full time childcare, mothers may be able to keep their young children at home while working. Flexible working will also make it easier to manage a school run around other commitments. As a result, we may see fewer women dropping out of the workforce when they have children which means they will continue to build skills, rise higher in their profession, and start successful businesses."
Read Aria Babu's whole article here and sign up for the Female Founders Forum newsletter here.
The Future of Work
Thanks to the omicron variant, many of us are working from home once again. This new-found flexibility is often a benefit, but as our 2020 report Resilience and Recovery found, it has been both a blessing and a curse for female founders.
In 2020, lockdowns and school closures negatively impacted female entrepreneurs far more than their male counterparts. Women were more likely to lose their jobs. Research from America found that women were more likely to be working at the kitchen table, where they were likely to be disturbed by family members, while their male partners took the home office. With schools shut and working home becoming the norm, the number of chores at home increased, and this burden fell disproportionately on women who also had to homeschool children and care for older relatives. During lockdown, British women have taken responsibility for two-thirds more childcare than men and they have also cut down their paid hours. Before the pandemic, mothers worked 80% of the hours that fathers did. During lockdown this dropped to 70%.
But it is not all bad news. The pandemic has ushered in lots of changes to how we live and some of these new changes may help female founders. It looks as though working from home is here to stay. Only one fifth of businesses intend to have all their workers in the office five days a week.
Women are half as likely to find working from home difficult. Remote work offers many advantages in terms of flexibility, which is very useful in the context of managing childcare responsibilities. Instead of having to pay for full time childcare, mothers may be able to keep their young children at home while working. Flexible working will also make it easier to manage a school run around other commitments. As a result, we may see fewer women dropping out of the workforce when they have children which means they will continue to build skills, rise higher in their profession, and start successful businesses.
Women are more likely to have short commutes once they have children and this mostly takes effect about four years after the birth of their first child. So there appears to be a clear causal link with the school run. The impact is that it curtails womens’ ability to succeed in careers which require people to live in or commute to expensive cities. The life sciences and FinTech, due to being based in places like London, Oxford, and Cambridge, particularly suffer from this.
If employers only expect employees to come in once a week, that makes it much easier to commute for up to an hour, with support networks such as relatives or other parents supporting with the school run. If working from home remains the status quo, we should expect mothers to stay in these professions at higher rates.
2022 promises to be an exciting year for the Female Founders Forum. We’re going to kick off the year with a series of regional roundtables.
These are going to be in the North West, Yorkshire, Wales, London and the South West. While we are doing the North West Roundtable virtually, we are hoping to do the rest in person, Covid guidance permitting. We will be building on the issues highlighted in our latest Female Founders Forum report Inspiring Innovation.
We are going to bring together local policy makers and the UK’s female founders to discuss the four barriers holding back female entrepreneurs in high-growth, high-impact industries, and what we can do to break them down. So we will be discussing how to close the funding gap, increase the number of girls and women in STEM, give girls and women better role models and mentors, and how to close the chore gap between men and women.
You can find all the events on our website.
Puritanical Politicians
Happy New Year!
While last year was incredible, 2022 is going to be busier than ever: more research, more webinars (and hopefully a fair number of in -person events), more meetings with politicians, more responses to consultations, and more policy impact. There has never been a better time to get involved.
We have our work cut out for us though. The gap between entrepreneurs and politicians still needs bridging. Duncan Robinson does a cracking job of explaining on reason why in an article for The Economist, arguing that British politics has a unique disdain for the country’s strengths.
For example, Robinson calls out Britain’s puritanical politicians, who seem to think the country’s thriving creative industries are not serious enough to merit praise: “They talk about Premier League football as if it were a mere den of iniquity, rather than Britain’s most potent cultural export. Videogaming is dismissed as a hobby rather than acknowledged as a national strength.”
Instead of kicking winners, we need politicians to prioritise entrepreneurship. Not for the sake of the entrepreneurs themselves, but for the economic growth they drive and the living standards they raise.
And we want to be a big part in solving this: by unabashedly making the case for an entrepreneurial society, by putting entrepreneurs in front of policy makers, and by backing this all up with hard research and smart ideas.
We’ll be doing this in lots of ways, but I’m particularly keen to share one just agreed with Enterprise Nation. Its founder, Emma Jones, has been on a mission to make Britain the most enterprising nation for years, and we’ll be partnering with them on reports looking at how small business owners can better access finance, people, markets and government.
As always, there will be ways you can get involved. Watch this space!
The Great
Many of the most successful entrepreneurs I’ve met have had a close relationship with a business school to help them scale.
This isn’t as common as it should be, but even less prevalent is entrepreneurs tapping into Further Education (FE) colleges – even though many businesses would clearly benefit from access to more bright young minds, as well as the resources of the colleges themselves.
That’s why we’ve teamed up with the educational charity Gatsby to look at how we can better bridge the gap. We’ll be hosting some virtual roundtables and are looking for entrepreneurs who want to learn more about how FE colleges can help their business or vice versa. Whether you’re totally new to this, or already have experience with FE colleges, just drop Anton an email to register your interest.
Saintly Patron
Again on the topic of partnerships, a particularly fruitful one has been with our Patron Sukhpal Singh Ahluwalia. He is a serial entrepreneur and philanthropist who arrived in the UK in 1972 as a refugee, fleeing Idi Amin's regime.
Sukhpal founded Euro Car Parts in 1978 from a single site in Willesden, London, and grew the company into the largest distributor of car parts in Europe, operating from more than 300 sites across the UK and employing more than 12,000 people. It was acquired by Nasdaq-listed LKQ Corporation in a transaction valued at £280m.
Sukhpal has written an article reflecting on the Job Creators report he supported two years ago, which found that half of the fastest growing companies have at least on foreign-born founder: “I was delighted when the Chancellor quoted the report in the Autumn Budget last year. It is also satisfying to know that the report's recommendations have been adopted by the government. Since its publication, the Tier 1 Post-Study Work Visa has been reformed and now allows international students to work in the UK for up to two years after they graduate. This is a testament to the quality of the data in the report.”
Get in touch if there is a policy you’re keen to support in a similar way.
Tak' A Cup O’ Kindness
This will (obviously) be the last Friday Newsletter of the year, so, as I did last year, I hope you don’t mind indulging me in looking back at the year through our reports, events and webinars.
Despite the obvious challenges, 2021 has been our biggest and best year. It’s testament to the incredibly talented small team and network of Advisers and authors that we’re able to do so much on a relatively small budget.
If you want to support us, join us as a Supporter or Adviser (the price of this will double in a week and whatever price you pay for joining is locked in for life). Or you can help by simply letting other people know about us, suggesting that they sign up for this or any of our three other newsletters. Also, if you have any feedback, questions, policy ideas or partnership proposals I’m always keen to hear from you.
January
Fixing Copyright was our first report of the year. Dr Anton Howes argues for seven key reforms to create a world-leading copyright system that would protect intellectual property while giving entrepreneurs more creative freedom and legal certainty.
We also hosted Chi Onwurah MP, Shadow Minister for Science, Research & Digital, for a virtual Entrepreneurs’ Drinks, and heard from Lord Bilimoria and Nicolas Rollason of Kingsley Napley at a virtual roundtable on the future of visas and immigration.
February
In February we virtually hosted Lord Leigh for an Entrepreneurs’ Drinks. As well as being Treasurer of the Conservative Party, he speaks out regularly on business matters and advocates the case for entrepreneurs. As with many of our virtual drinks events in 2021, this one was supported by Mishcon de Reya, a long-term sponsor of our work. Later in the month we had Ian Murray MP, Labour's Shadow Secretary of State for Scotland, for another virtual drinks event.
We also convened an event in partnership with Kingsley Napley on The Future of International Business with the government’s Global Entrepreneurship Programme, and held virtual interviews with our Adviser Farah Naz founder of EX1 cosmetics, as well as separately with Cecile Reinaud, founder of Seraphine and Member of our Female Founders Forum.
March
In March we released Making the UK the Best Place in the World for AI Innovation. Written by former Office for AI Adviser Seb Krier, it sets out the pro-innovation policies we need to build upon our strengths of being home to top universities and cutting edge businesses such as DeepMind and BenevolentAI.
Through the APPG for Entrepreneurship we also hosted a webinar on Levelling Up with Baroness Chalker, Seema Malhotra MP and Jo Gideon MP. The ideas from this will feed into a forthcoming report with input from the Enterprise Research Centre (ERC). We also had John Penrose MP for an Entrepreneurs' Drinks in March.
April
We hosted Sarah Olney MP for an Entrepreneurs’ Drinks in April. She undertakes the roles of Liberal Democrat Spokesperson for Business and Industrial Strategy, Transport, and Energy and Climate Change, so it was a wide-ranging discussion. We also held a Female Founders Forum webinar on Trade Accessing New Markets.
May
In May we hosted Small Business Minister Paul Scully MP and founder of Octopus Chris Hulatt for a webinar on How to Build a Nation of Entrepreneurs. We also held a virtual roundtable on the Sharing Economy, which helped inform our report on the same topic released later in the year. In addition, we hosted an Entrepreneurs' Drinks with Selaine Saxby MP and a Female Founders Forum webinar on Preparing for a Crisis.
June
In June we released Conflicting Missions: The Risks of the Digital Markets Unit to Competition and Innovation. In this report, Sam Bowman, Sam Dumitriu and Aria Babu explained how the new Digital Markets Unit poses significant risks to competition, innovation, and entrepreneurship.
To launch the report we hosted a virtual event with the UK Government’s anti-corruption champion John Penrose MP; Will Hayter, Senior Director, Digital Markets Unit at Competition and Markets Authority; Camilla de Coverly Veale, Head of Tech Regulation, Coadec; and John Fingleton, former Office for Fair Trading CEO and founder of Fingleton Associates.
We also released Honours for Innovators in the same month. In this report, Ned Donovan and Dr Anton Howes make the case for establishing a new order of chivalry, specifically designed to encourage invention and raise the status of being an innovator in the eyes of the public. John Petrie OBE, who has helped design national honours and decorations for several Commonwealth countries, even created some potential designs.
June was a busy month for papers, with Knocking Down Barriers: Empowering Business Builders in the UK’s Most Deprived Communities also released. In partnership with Sage, Sam Dumitriu sets out how new business creation will play a vital role in the post-pandemic economic recovery and the wider levelling up agenda. One revealing stat: 43% of those in the UK’s most economically deprived communities could, unprompted, name a viable idea for a business or side-hustle.
We also hosted John Stevenson MP for Entrepreneurs' Drinks event. As Chair of the APPG for Family Business we were joined by many of the UK’s most innovative family businesses. We also held a Female Founder Forum webinar on Building a Team You Can Trust with Vanessa Tierne, founder of Abadoo; Karina Robinson, co-director of The Inclusion Initiative at the London School of Economics, and Louisa Chapple, HR Director for Barclays Execution Services.
July
In July, we released The Way of the Future: Supercharging UK Science and Innovation with The Tony Blair Institute. It includes a preface from Tony Blair and a foreword by Patrick Collison, co-founder and CEO of Stripe. If you’ve not read it yet, it would be my top recommendation out of all our 2021 reports. It covers a lot of ground in the pithy essays.
We kicked off our Something Ventured partnership with FieldHouse Associates in July. The formidable Sharon Vosmek, CEO of Astia inspiring all in attendance.
We also hosted Jerome Mayhew MP in July for a virtual drinks event. As a director of the Go Ape from 2006 to 2009, and its managing director from 2009 to 2018, Mayhew talked about how he plans on bringing his business experience into politics. We also spoke with ever-impressive Lord Young in July about his recently published Diaries of the Campaign That Saved Enterprise.
July also saw us virtually host some of the UK’s most impressive space entrepreneurs, the ideas from which will feed into a forthcoming APPG for Entrepreneurship paper on supporting space startups and scaleups. We also hosted a Female Founders Forum webinar on Funding Opportunities for Female Entrepreneurs with Tiffany Young of YFM Equity Partners, Helen Meade of UKRI and Katherine Morgan of Barclays.
September
Building on Conflicting Missions, Better Together: The Procompetitive Effects of Mergers in Tech saw Sam Bowman and Sam Dumitriu join forces again to explain how mergers in tech can enhance competition and why proposals to lower the burden of proof used by the CMA to block mergers involving digital firms with strategic market status risks harming the UK’s startup ecosystem.
We also hosted Stephen Page, founder & CEO of SFC Capital for another Something Ventured event. SFC Capital is the UK and Europe's most active seed investors, so we focused on early-stage funding. We also hosted Robin Millar MP for our first Hackatown event. Focusing on Llandudno, we convened local entrepreneurs and national experts to discuss what could be done to make the town more entrepreneurial.
October
In October, we published our annual Female Founders Forum report, which we run in partnership with Barclays. In Inspiring Innovation Aria Babu looks at female entrepreneurship in the high-growth sectors such as e-commerce, fintech, and greentech, setting out how the UK can capitalise on the opportunity for a £200bn uplift in our economic growth. It was launched in the House of Lords at our first in-person event for a while, with Baroness Susan Greenfield speaking at the launch.
In October we also released Digitise the Skies, in which Anton Howes and Sam Dumitriu highlight the potential of the UK’s nascent drone industry and set out reforms to unlock the sector’s £42bn forecast contribution by 2030.
We launched our Green Entrepreneurship Forum in October. In partnership with Mishcon de Reya, it’s a project we’re continuing next year. A week after the launch we hosted a virtual roundtable on Funding the Future – how to raise next stage funding for green businesses.
We also hosted a Late Payments Task Force webinar with the Small Business Commissioner. This was a culmination of Xero’s Late Payments Task Force which I chaired. It analysed the lifecycle of an invoice in order to work out what interventions could really work to address the persistent problem of late payments. We also hosted David Glick, Founder & CEO, Edge Investments, for another Something Ventured interview.
November
Tim Mills, Managing Partner at ACF Investors, was our guest for the penultimate Something Ventured interview of the year. ACF (formerly the Angel CoFund) backs early-stage businesses across a variety of sectors through co-investment funds that partner with angel syndicates. Among other things, we discussed the increasing importance of "professional" angel investors in early-stage rounds. Also in November, we hosted our final Green Entrepreneurship event of the year on Ecosystem Economics.
December
As part of the APPG for Entrepreneurship, we released a paper on the Sharing Economy in December. It advocates for a continued level-playing field on tax and for preserving the regulatory environment that has allowed the sector to flourish, while also empowering platforms to prioritise standards.
In early December we hosted a physical roundtable on the future of regulation for Blockchain and Cryptocurrencies, as well as our final Something Ventured open interview with Michaël Niddam, co-Founder of the venture builder Kamet Ventures.
Expect even more 2022!
All that's left is to wish you and yours a Happy New Year.
Sharing is Caring
As many of you will know, we’re the Secretariat of the All-Party Parliamentary Group for Entrepreneurship, which sits across all major parties in the House of Common and Lords. It's job is to encourage, support and promote entrepreneurship across the UK, and ensure that Parliament is kept up-to-date on what is needed to create and sustain the most favourable conditions for entrepreneurship.
Today it published a briefing paper on the Sharing Economy: a vibrant and growing pillar of the UK’s economy.
Over the past decade, venture capitalists have invested £3.47bn in 465 sharing and on-demand economy businesses. Almost half of us use sharing economy apps to access goods and services. This is a trend that’s only going in one direction.
And a good thing too. It’s so much more efficient to share than to own, and more efficient to rent services flexibly – whether rooms (Airbnb), cars (Uber), cleaning (Housekeep), wellbeing (Urban), baby clothes (Bundlee), or even dogs (Borrow My Doggy).
These innovations make the scarce plentiful, reducing transaction costs and cutting waste. Whether you’re a cold-hearted Ebenezer Scrooge looking to save a few pennies, or a warm-hearted Bob Cratchit trying to provide for your family on a tight budget – the sharing economy helps everyone. And, in the process – whether it’s their intention, or not – using fewer resources which is better for the environment.
It's not just the private sector. Norwich City Council has even backed the city to become the UK’s first ‘sharing city’ by helping coordinate charities and companies in the sector.
Today’s briefing paper isn’t really a celebration of the sector though. That's beyond dispute. It’s a policy-rich analysis of the key challenges it’s facing and what we need to do to ensure it continues to flourish.
Sharing economy businesses face headwinds – none stronger than the way they could be taxed. Many entrepreneurs we spoke with and who responded to our Call for Evidence worry about the Treasury’s consultation on applying VAT as standard to all sharing economy transactions.
All they want is a level playing field. Their competitors are offline businesses who sell their services directly to consumers and are under the VAT turnover threshold. One entrepreneur said the change would ‘essentially kill our business model.” Another argued this could be a net-revenue loser for HMRC as it could push people away from platforms to the grey ‘cash-in-hand’ economy.
As Sam Dumitriu writes: "As the sharing economy grows, the Treasury is understandably concerned about the set-up. But fiddling with the rules on VAT will create major problems for sharing economy start-ups. Take the cleaning platform Housekeep, which matches cleaners with customers. If they were forced to apply VAT in full to every clean booked through their platform, then customers and cleaners would soon leave the platform. After all, there would always be lower-taxed offline alternatives, not least old-fashioned word of mouth."
The Call for Evidence also uncovered problems with a rule designed to prevent low-risk activities such as leasing ships from gaining SEIS and EIS relief.
For example, the investors of Bundlee, the UK’s first baby clothing rental subscription were not eligible to claim SEIS on their investment. In contrast, an e-commerce business that sold the same clothing would qualify for the reliefs. A simple fix would be to amend the excluded trades list to only exclude businesses that are leasing high-value and long-lived assets such as ships or property.
We’ll be pushing for these and the other recommendations around third-party reporting requirements, the implementing an Estonian style tax system, and high visa fees. Once again, it’s proof that many of the most practical policies come from entrepreneurs on the ground.
As Gagan Mohindra MP – Officer to the APPG for Entrepreneurship, Conservative MP for South West Hertfordshire and a former entrepreneur – writes in his Foreword:
“The report suggests businesses desire a level-playing field in relation to taxes compared to offline businesses. The APPG supports the findings of this report, concluding that a fair and sustainable tax system would allow businesses on sharing economy platforms to compete, benefiting consumers. As legislators, work like this provides a vital reference point to continue to ensure the Government is on the right track to help entrepreneurs across the country thrive. We will use these recommendations to inform our decisions, with better knowledge of the practices as well as challenges that small businesses face.”
Sign up to Philip’s Friday newsletter here.
UK's A-Bomb
Atomico’s annual State of European Tech report is a big deal, and a bit of a beast. I read it – well, heavily skimmed it, making liberal use of Ctrl-F – so you don’t necessarily have to.
The hundreds of charts speak for themselves: the UK is leading the way in European tech.
“On a cumulative basis, over the past five years the total amount of capital invested in UK tech companies has nearly reached $75bn. This is more than double the amount of capital invested in the second and third largest countries; Germany and France.” During the first nine months of this year we have had 68 rounds of $100m+ and according to the report, we are “Europe’s leading home for unicorns” with 100 in total – once again, that’s nearly double Germany (51) and over three times France (31).
More specifically, UK tech is leading the way on special-purpose acquisition companies (SPACs): “Nine out of 15 of the companies are UK-based, accounting for 60% of the total cohort by count and 53% by enterprise value.”
Venture capital in the UK is raised from the most varied set of limited partners (LPs), with sources evenly distributed between pension funds, funds of funds, sovereign wealth funds and corporate investors. And UK VCs have the lowest share (12%) of capital raised from government agencies of any region in Europe. In contrast, 52% of VC funding raised in Central and Eastern Europe originates from government agencies.
But it’s not all good news. When is it ever?
Of those SPACs I mentioned, all went public on the New York Stock Exchange or NASDAQ. This is part of a broader problem, with the UK seeing more of its unicorn tech companies list on US exchanges than other European countries. As the Economist reported today: “any pretensions the City once had as the world’s stock exchange have been dashed. Its share of global IPOs has dropped by a factor of five, to 4%, and the number of companies listed on it has fallen by 40% since the peak in 2007. As a share of the global equity market, and even of the sclerotic European one, the value of Britain’s has dropped steadily.” It is why the FCA has just changed listing rules to attract more UK IPOs – something we recommended.
Also, talent remains a challenge, with 37% of UK-based founders believing that the depth of the talent pool is worse compared to 12 months ago. To be fair, 33% think it’s better, although in France, for example, it’s 54% (better) and 19% (worse).
The report compares the number of founders that have emerged from $1bn companies and the location of these unicorn companies. While we have the highest share of alumni founders (24%), this is lower than our 33% share of $1bn companies. Someone (perhaps us) needs to take a look into why more entrepreneurs aren’t emerging from our unicorns.
As we have written about many times, UK pension funds still aren’t backing entrepreneurs, with just 6% going into venture capital. As the report states, “Nordic VCs, in particular, have benefitted from the progressive, pro-venture approach taken by local pension funds; pension funds represent almost 30% of all capital raised by VCs based in the Nordics, more than 6x higher than the next region.” It’s not just rules, the problem is the culture of our pension funds. We’re looking at ways we can do our bit to help bridge this gap.
Overall though, it’s an incredibly positive story for the UK. Economic growth isn’t a zero-sum game of course. We should celebrate the growing strength of European tech more broadly. But given someone has to be leading the way, we should be grateful that it’s the country many readers will live and work in.
Go Further
Those studying at Further Education (FE) colleges will often go on to start a business, but are they getting the inspiration and skills they need? From the other side, FE colleges are well placed to support the ambitions of local entrepreneurs, but how many entrepreneurs engage with them?
Last year, the Gatsby Charitable Foundation supported the Think consultancy to produce an excellent review of the relationship between business support services and further education. It looked at the role of Local Enterprise Partnerships (LEPs) and other business support services. It is an encouraging read, but given the chance that LEPs will be overhauled in Gove’s Levelling Up White Paper, I’m increasingly of the view that government might not be the most sustainable solution.
That’s why we’ve been working with Gatsby to explore the potential for connecting our network of entrepreneurs with FE colleges. We’ve undertaken a scoping exercise and our next step is to host some virtual roundtables with FE colleges and entrepreneurs around the country to test our ideas. We want to work out what best practice looks like.
Get in touch with Dr Anton Howes in our team to get involved. Perhaps you’re an entrepreneur who went to an FE college, and have thoughts on how your education benefited you, or could be improved. Or you could be an entrepreneur making the most of a local FE college already. Or maybe this is the first you’ve ever thought about it until now and just want to stay updated.
Sign up to Philip’s Friday Newsletter here.
Green Entrepreneurship Forum: Natural Resources
On 18th November we hosted the third instalment in our series of roundtables for the Green Entrepreneurship Forum: a new policy initiative we are running with Mishcon de Reya that brings together the UK’s most successful sustainability driven entrepreneurs to help support their growth and inform us on the policies they need to flourish.
As natural resources are declining and demand is increasing, the commercial value of natural resources that benefit people are becoming more visible. At this online roundtable we discussed how companies could create benefits for both themselves and the planet by investing in “natural capital”.
Alex Rhodes, Head of Purpose at Mishcon de Reya and a Fellow at the Royal Geographic Society, and a Conservation Fellow at the Zoology Society of London, opened the discussion by looking at COP26, in particular the rules to strengthen the integrity of Carbon Markets. The WWF Living Planet Report showed that we have destroyed about 60% of our biodiversity since 1970. Alex observed that this was one of the biggest challenges for the international markets and policy, as many of the countries with significant ecosystems such as rainforests need support transitioning their economies. Alex also identified 3 areas Mischon De Reya has seen changes in relation to biodiversity:
1. Investment markets have an increased focus on trying to understand what biodiversity is, how to measure it and how to report on it.
2. Development companies are looking at net positive biodiversity in relation to infrastructure.
3. Changes to agricultural subsidies and that move from the common agricultural policy’s system of paying people by the acre to a new policy of environmental ecosystem based payments which the government is currently trialling.
Next we heard from Ben Goldsmith, CEO of Menhaden and board member for DEFRA. Ben shared that his lifelong fanaticism for nature started as a child, and observed that one of the fundamental problems in our society is that most people lose their connection with nature as they grow into adult life. But, he can see through his work that people are rediscovering that connection in a kind of societally important way, and that is being reflected in global policy. At COP26 policymakers are talking about climate change and nature in the same context. In the UK there are new, significant budget initiatives around nature such as the Nature Climate Fund where £750m is available for restoring peatlands and forests and the new agricultural payments regime which, after a seven year transition period, will be focused entirely on rewarding land managers for restoring nature. The UK is also at the centre of new deals around slowing and ending deforestation, restoring mangroves and creating new marine protected areas.
We then heard from Will Wells, Founder and President of Hummingbird Technologies, an Agri-tech platform which monitors natural resources from space using imagery and deep learning models and detects climate positive switches in regenerative agriculture. He shared his perspective as a leader in the emerging climate tech landscape, which he believes will not only be a great employer but will make a huge difference to the environment. His career has focused on three big questions.
How can we produce food in a way that is regenerative - whilst agriculture, land use and forestry is responsible for 20% of all greenhouse gas emissions, it also has the potential to be a trillion metric tonne carbon sink?
How can technology be leveraged to measure, monitor and verify the natural resources that are being preserved so governments and big companies can reward responsible producers?
How can we get government politicians and everyone to unite on upstream biodiversity loss in the form of the global deforestation pledge?
Finally, we heard from Richard Roberts, Head of Research at Volans. Richard shared his enthusiasm for the forum because change requires enlightened businesses to engage in politics - as Ronald Reagan once said “politics is too important to leave it to the politicians”. Richard felt that the snail's pace of the COP26 process masks the significant collective change that is happening to our society. Another quote that gets used is from one of of Ernest Hemingway's novels where a character is asked how they went bankrupt, and the answer is “First, gradually, then suddenly”, which applies to the current environmental agenda which has been gradual for such a long time, but is now shifting into a phase of sudden capital, policy, and technology convergence to address the issue. Richard also shared some of his ‘Tomorrows Capitalism’ research that has shown that we have been running an economy that is in ecological deficit for a very long time, and the consequences of that are now becoming apparent. We are going to be paying off that ecological debt for a long time, but that creates a big opportunity for regenerative agribusiness and any business that is helping to restore nature and biodiversity.
A number of ideas were shared during the ongoing discussion, including the following:
There is a significant political appetite for the government to raise its ambitions in environmental policy, particularly from younger MPs and Red Wall MPs.
The carbon credits system is masking the problem that all production has a carbon cost. Globally we need to ensure the carbon credits system can be strengthened to ensure that carbon credits are invested in a more effective and measured way, such as the Saudi system where developers are making direct contributions to marine conservation which is creating a long lasting carbon sink. We need higher fidelity, better monitoring, better measuring and a more robust and honest carbon credit system.
Local authorities need to review their procurement system to invest in new green technologies. They are held back by procurement lists which mean they can only work with certain suppliers, stopping them from using more innovative and sustainable solutions. There are also barriers created by local politics which stand in the way of council efficiency and innovation.
Procurement is also a challenge when companies are looking to work with farmers. For example, biochar is part of the government plan with a goal to produce 5 million tonnes of it annually by 2040. However, there are barriers for biochar organisations looking to work with farmers who often work in a traditional way and do not have a lot of spare resources to look at new business models or suppliers. DEFRA is investing in organisations which build relationships with farmers to help educate them about new innovations, so these provide an opportunity for entrepreneurs in this sector.
Schools could educate children on the positive changes that are being made to improve the environment and how these work in different regions.
Water is becoming an increasingly stressed resource, and one of the areas DEFRA could look at is how to incentivise farmers to put in more nature based solutions, such as chalk streams, rather than relying on water treatment works, and how to get to scale.
We also need to review the regulation, which does not recognise the integrated nature of natural solutions. For example, if a company takes waste water from a treatment works and puts it into a wetland, they need a waste management licence.
Nature is very place based, and there is an argument that we need to shift to seeing more businesses which are grounded in their local communities. This creates an existential challenge for the big multinationals with complex supply chains, but there is recognition particularly in food and agricultural companies that they need to reinvest in regenerative nature.
Corporate measurements of sustainability are extremely varied, depending on the individual companies focus or product. For example, Nestle are interested in 1000 farms upstream in the Amazon and deforestation, British Sugar might be about sugar bean fields and soil erosion, Wessex Water might be looking at planting cover crops near a river, and Diageo might be looking at carbon emissions across their supply chain so we can buy a zero emission pint. They are engaged, but it is extremely fragmented.
One of the challenges for the UK is we only account for 1% of world carbon emissions, and unless we can change things on a global scale we are making a tiny contribution. To make global changes we need to look at reducing other factors such as conflict and poverty to influence the economies and priorities of other nations.
If you took all the degraded land in the world it would be a greater land mass than Russia.
Our next roundtable is on 12th January, where we will be exploring ‘The Value of Nought - How to align your business with Net Zero’ . If you would like to get involved in the Green Entrepreneurship Forum and contribute to this roundtable please email katrina@tenentrepreneurs.org.
Miss the Mark
This week our friends at the Global Entrepreneurship Network (GEN), in partnership with the OECD and EU, released The Missing Entrepreneurs.
GEN’s report finds that if everyone were as active in business creation as men between 30 and 49 years old, there could be an additional 9 million people starting and managing new business in the EU, and 35 million more across OECD countries. About three-quarters of these so-called “missing” entrepreneurs are women and one-in-eight are under 30 years old.
The young are less entrepreneurial than the old. One quarter of the 18 million people involved in starting or managing a new business in the EU are over 50 – even more than the proportion aged 18-30.
It’s not that the young don’t have ambitions. As the report finds, 45% of university students intend to start a business within five years of graduation, yet only 5% of youth aged 18 to 30 are actively working on a start-up. Along these lines, we found with Octopus that 51% of young people in the UK have thought about starting a business, yet 70% of them don’t know where to start. Let’s not let the UK’s equivalent of Whitney Wolfe Herd or Mark Zuckerberg go to waste.
The report also finds that women are less likely than men to be involved in starting and managing new businesses: “Over the period 2016-20, less than 5% of women in the EU were involved in creating a business or managing one less than 42 months old relative to 8% of men. A similar gap appears in OECD countries where 9% of women were starting and managing new businesses relative to 13% of men.” Our latest on this ongoing battle for equality can be found in our Female Founders Forum report.
Finally, the report finds that the share of immigrants among the self-employed in the EU has nearly doubled over the past decade, increasing from 6% in 2011 to 11% in 2020. A lot of this is driven by immigration flows, so any policy interventions designed to improve the quality and longevity of businesses need to account for the fact many immigrants will be less able to navigate their new country’s bureaucracy. We’ve tended to focus on the immigration of high-growth entrepreneurs rather than those starting out – an omission that we will need to fix at some point.
Be Animated
As I’ve written about before, we’re concerned that the trajectory of competition policy is damaging the UK’s entrepreneurial ecosystem. In both Conflicting Missions and Better Together, we spoke out against misguided and unclear rules around mergers and acquisitions that are spooking UK entrepreneurs and investors.
We are one of the few public voices on this vital issue. This week Sam Dumitriu criticised the CMA’s decision to retrospectively block Facebook/Meta’s purchase of Giphy, as well as speaking more broadly about competition policy on a TechUK panel. His succinct speech, which neatly sets out our concerns, can be read here.
A Word on Advice
We’re cautiously planning in-person events for next year, including a host of dinners for our Advisers (we switched to wine and Zoom during the lockdowns). As well as our tried and tested format of dinners led by leading politicians from across the spectrum, we’re planning some with just entrepreneurs.
Now would be a great time to become an Adviser – not least because we’re putting the price up next year (while freezing the price for all current Advisers). Also, as the number steadily grows we will have to cap the number we have. Find out more about becoming an Adviser here and drop me an email if you would like to chat about what’s involved.
Sign up to Philip’s Friday Newsletter here.
Speech to TechUK Panel on Digital Competition.
This is an edited version of a speech I gave to TechUK on Thursday December 2nd at a panel on the new ‘pro-competition regime for digital markets’. Footage of the speech will be available online eventually.
I’m going to focus on a specific part of the proposed ‘pro-competition regime for digital markets’: merger control.
The reforms proposed by the government would block any deal involving a SMS firm that creates a ‘realistic prospect’ of reducing competition – defined as being a ‘greater than fanciful’ chance.
Under the status quo, the CMA only blocks deals if they think there’s a 50% or more chance of it substantially lessening competition. So this would represent a substantially lower standard.
It is already used in deciding whether to refer a deal to phase 2 review, but the CMA has already said that historical deals that were not referred to phase 2 would likely be blocked by this, like Facebook/Instagram, so I don’t think that’s as good a guide to what would and wouldn’t be blocked as we might like.
I think the CMA has underestimated the risks of this approach, and has been a bit myopic about the effects it has on the wider economy.
It’s sensible for the CMA to take a narrow view when it’s reviewing individual cases, but when it’s proposing legislation I’m pretty disappointed that it doesn’t seem to have considered the harms that it can cause if it is given excessively broad powers.
To understand these harms, I think it’s first worth establishing that mergers often play an important pro-competitive role in tech.
I want to focus on two key reasons why we should not automatically assume that all acquisitions in tech are suspect and anti-competitive.
1. Acquisitions are a key route to exit for entrepreneurs
High-growth tech entrepreneurship is inherently risky. Most startups fail and the VCs who fund them know this.
Only a small fraction of businesses will go on to IPO.
According to data provider Beauhurst, only nine equity-backed startups exited through IPO in 2019.
Last year eight British equity-backed startups were acquired by Microsoft, Google, Facebook, Amazon, and Apple alone.
Acquisitions, in effect, derisk entrepreneurship and investment in high-growth startups, because if your company isn’t going to be the next Facebook they mean you can still make money from it. I don’t think it’s a wise policy to try to force startups to become the next Facebook against their will – but increasingly it seems like the CMA thinks we need to protect startup founders from themselves, and force them into much riskier paths than might be wise.
Because exits are so important to founders and their investors, it should not be surprising that cross-country studies find that restrictions on mergers and acquisitions are linked to declining rates of VC investment. I think it’s likely that if the UK becomes more restrictive, we’ll see the same effect here.
2. Acquisitions facilitate interplatform competition.
Competition in digital markets often takes place between digital platforms that have a strong position in one market and move into another market dominated by another digital platform.
Acquisitions can accelerate this kind of inter-platform competition. Instead of starting from scratch, platforms can use mergers to gain a foothold in the new market, and do so more rapidly and perhaps more effectively than if they had to develop the product in-house.
A few examples:
Google’s acquisition of Android increased competition faced by Apple’s iPhone
Apple’s acquisition of Beats by Dre increased competition faced by Spotify as it accelerated the development of Apple Music
Walmart’s acquisition of Jet increased competition faced by Amazon in e-commerce.
As Ben Evans puts it: “for every Instagram, there’s a PA Semi, which Apple bought in 2008 for $278m. PA Semi is the reason Apple is now creating its own chips to power all of its devices, and why those chips are better than anything from Intel or Qualcomm. Intel had a near-monopoly of CPUs for personal computing for close to 40 years, and now Apple has broken that dominance, because of an acquisition.”
If any of the mergers I’ve just mentioned were blocked then its likely competition in digital markets would have declined, and consumers would be worse off as a result.
In essence, and I hope we all accept this, there is a cost to over-enforcement as well as under-enforcement, and I’m not convinced the CMA is taking that seriously.
The question is whether or not new harms in digital markets justify changes to the merger control regime.
I’m sceptical for three reasons.
1. I’m sceptical of the ability of regulators to identify anti-competitive acquisitions in advance.
I recently saw Tommaso Valletti say: “1,000 and zero: mergers done by GAFAM and mergers blocked in the past 20 years.”
I’ve often heard something similar cited as an argument against the status quo, including from Andrea Coscelli and the Furman Report (Tommaso’s numbers are slightly inflated).
But while these are impressive sounding numbers, the vast majority of these deals were absolutely tiny – half were worth less than $10m and 80% were worth less than $50m. Between 80-90% were acqui-hires of companies with fewer than ten staff members.
When you actually list the deals that people think were problematic, the list is much smaller – Facebook / Instagram and Whatsapp, Google / Waze and Doubleclick, and perhaps a few others.
We can have different views on whether these should or shouldn’t have gone through, but it’s really just a rhetorical trick to use the biggest number possible that, on further scrutiny, really just muddles the question.
It feels probable to me that any rule or burden of proof that picks out the rare anti-competitive acquisitions of startups will also end up picking out many more procompetitive or neutral buyouts.
The question for the CMA and the government isn’t just “Should we have blocked Facebook / Instagram?” – it’s “Are we sure that a regime that leads us to block Facebook / Instagram might not also cause us to block the next Apple / PA Semi, or Google / Android?”
2. Arguments about potential competition tend to prove too much.
Take the classic example of potential competition being snuffed out: Facebook buying Instagram.
If Instagram posed a potential or nascent competitive thread to Facebook when Facebook acquired it, with its photo feed and social features, then so must other services with products that are clearly distinct from Facebook, but have social features.
In which case Facebook faces potential competition from other services like Tiktok, Twitch, Youtube, Twitter and Snapchat, all of which have services that are at least as similar to Facebook’s as Instagram’s.
The loss of a single, relatively small, potential competitor out of many cannot be counted as a significant loss for competition, since so many other potential and actual competitors remain. We can define these markets narrowly, or broadly, but we can’t define them in both ways at the same time.
3. Are new powers necessary?
This week we saw the CMA order Meta to sell Giphy. (I blogged about it here)
One of the key justifications was that Giphy is a potential competitor to Meta in the display advertising market.
I think the decision is quite a stretch, but really it raises a more important question: If the CMA is able to stop this deal under the existing burden of proof, on such speculative grounds, what deals does it want to stop but can’t because the burden of proof is too high? Are we really sure that we want to block deals on even more speculative grounds than Facebook / Giphy?
Three thoughts on the Giphy ruling
In a ruling released today, the Competition and Markets Authority has retrospectively blocked Facebook/Meta’s purchase of Giphy.
It’s an interesting (and somewhat concerning) decision for three reasons:
1. Potential Competition
There were two main ‘theories of harm’ that led the CMA to call for Facebook/Meta to sell off Giphy. First, there was the concern that Facebook/Meta could limit access to Giphy’s GIF libraries for competitors to Facebook and Instagram, such as Twitter. Second, the CMA saw Giphy as a potential competitor to Facebook’s Display Advertising business.
This is a curious reason because, as my co-author Sam Bowman argues, “It proves too much.” Giphy is not currently a competitor to Facebook in digital advertising — its ad business is simply too small. It is so small, in fact, that the initial takeover did not require board level approval. The CMA’s concern is about competition in the future that could be lost – the fear that Giphy could, in effect, be the next Instagram and some day have a significant presence in digital advertising.
But if Giphy is a potential competitor in display advertising, then why isn’t, for example, Google’s display advertising business also a competitor today? And why isn’t any company with a large userbase online a potential competitor that could be just as much of a constraint on Facebook as the CMA believes Giphy could be? In effect, the CMA is trying to define the market both broadly, to include Giphy’s potential competition, but also narrowly, to exclude every other actual and potential online advertiser.
This is a more general problem not linked to the specific deal in question. When you define a business as a potential competitor, you also inevitably define other similar businesses as potential competition too. This can radically change our view of how competitive any given market is.
As Sam Bowman and I wrote in our paper Better Together: The procompetitive effects of mergers in tech:
If one firm with a similar, but fundamentally different, product poses a potential threat to a purchaser, there may be many other firms with similar, but fundamentally different, products that do, too.
If Instagram posed a potential or nascent competitive thread to Facebook when Facebook acquired it, with its photo feed and social features, then so must other services with products that are clearly distinct from Facebook, but have social features; in which case Facebook faces potential competition from other services like Tiktok, Twitch, Youtube, Twitter and Snapchat, all of which have services that are at least as similar to Facebook’s as Instagram’s. In this case, the loss of a single, relatively small, potential competitor out of many cannot be counted as a significant loss for competition, since so many other potential and actual competitors remain.
There’s a further problem. In assessing potential competition, the CMA must assess the viability of various different business models. But is it capable of doing so? Questions like “Will Giphy’s paid alignment (i.e. brands agree partnerships with Giphy to show relevant GIFs when users search the library) model provide meaningful competition to Facebook/Meta’s advertising business?” and “Can loss-making Giphy raise additional finance if the prospect of a takeover from a tech giant is off the table?” are far from clear even to the most well-informed analysts of these markets, and it is unclear whether the CMA’s understanding is even that sophisticated. If the CMA’s assessment of market conditions is inaccurate, then there is a real risk of harm to competition and innovation if it erroneously blocks a deal that would have been procompetitive.
2. The CMA prefers structural to behavioural remedies.
The second theory of harm, other than the idea that Giphy might have become a competitor of Facebook/Meta’s in digital advertising someday, was the idea that Facebook/Meta could cut off access for competitors to Giphy’s GIF libraries, which the CMA found did not have many close substitutes. But, if true, this could be addressed by a range of behavioural remedies.
Why not force Facebook/Meta to maintain open access to the Gif libraries for the near future, at least until competitor libraries are developed?
Alternatively, Giphy’s terms of services could be changed to allow ‘commingling’ where Giphy’s results can be viewed alongside a competitor’s GIFs. In theory, this could help a competitor develop using a Giphy-style ‘paid alignment’ advertising model.
However, both of these remedies were dismissed in favour of a break-up.
3. Is lowering the burden of proof really necessary?
Elsewhere, the CMA is proposing to lower the standard of proof needed to block mergers and acquisitions involving tech firms with “strategic market status” (e.g. Facebook and Google). Under the status quo, the CMA can block a deal if it is deemed to carry a greater than 50 per cent chance of substantially lessening competition. But under the CMA’s proposals, under consideration by the government, the CMA could stop any acquisition by a SMS firm that creates a ‘realistic prospect’ - defined by a court as being a ‘greater than fanciful’ chance – of reducing competition.
The CMA argues that changing the rules is necessary to block deals that threaten potential competitors – such as Facebook/Meta’s takeover of Instagram. But if the CMA is able to block the Facebook/Giphy deal under the status quo, it raises the question: is changing the burden of proof actually necessary to block the deals the CMA thinks need to be stopped? I’d argue the answer is no: it has blocked this deal on relatively speculative potential competition grounds.
There is, of course, a major risk attached to any real or perceived crackdown on mergers. Venture capitalists invest in startups in the hope of a lucrative exit. Most VC-backed businesses fail and only a chosen few are able to IPO and list on a stock market. Mergers and takeovers are a major route to exit. They derisk high-growth entrepreneurship and as a result, we get more of it. Studies show that tougher M&A rules are linked to lower levels of equity investment in startups. If exits are blocked, the result will be less investment, less entrepreneurship, and less innovation.
The Times is already reporting that Amazon “have paused the idea of making any UK acquisitions because it views the country’s regulatory regime as unpredictable.” If the CMA gets what it wants, along with its newly restrictive attitude to acquisitions, it may make it much more difficult for UK startups to grow. Though the CMA probably should not factor in the impact on startup formation and VC investment to its decisions, the Government should.
The Life Aquatic
Earlier this month, Holden Karnofsky, co-founder of Open Philanthropy and GiveWell, wrote an article on the different ways people think about how to make a difference in the world – something we care about for obvious reasons.
It’s informative for anyone who wants to classify their approach. It may also help you better better understand the basis for why you’re disagreeing with others.
Karnofsky asks us to imagine the world as a ship. We can ‘row’ to help the ship reach its current destination faster, ‘steer’ to navigate to a better destination than the current one, ‘anchor’ to hold the ship in place or prevent change generally, and/or try to make the world more like it was a generation or two ago, ‘mutiny’ to challenge the ship's whole premise and power structure, or focus on ‘equity’ to work toward more fair and just relations between people on the ship.
We’re mostly a ‘rowing’ organisation. We work to advance entrepreneurship, technology and growth in order to make us all better off, something we set out in our evolving policy priorities page.
Karnofsky himself is pro-rowing, but raises some concerns. For example, those in favour of this worldview (e.g. venture capitalists, tech founders, etc.) suspiciously seem to also be personally interested in getting rich. He wonders if we should trust entrepreneurs’ narrative about the world getting better when some seem to clearly benefit from it.
No doubt the motivation of some entrepreneurs and investors aren’t purely altruistic, but they aren’t the reason I think progress matters. Intellectuals like Karnofsky tell the most convincing story as to why the world is getting better, and entrepreneurs, innovators and investors are driving this change.
Another counterpoint raised are things like environmental damage, rising global catastrophic risks and rising inequality. ‘Rowers’ have some answers – for example, entrepreneurs are critical to solving environmental problems – but not all of them. Just to give a micro example, it seems right that the government banned microbeads in 2018 even though there were no doubt some plastic entrepreneurs and investors who lost out. While the unintended consequences of bans and regulations too often outweigh the benefits, they don’t always.
Similarly, there is a strong ‘steering’ and ‘anchoring’ case to be made for the risks that come alongside the huge opportunities from AI – something I raised here back in 2018. It’s something that the Effective Altruism movement is particularly keen on.
And not all approaches are in conflict. As Karnofsky says: “I think that much of the progress the world has seen is fairly hard to imagine without significant efforts at both rowing and equity: major efforts both to increase wealth/capabilities and to distribute them more evenly. Civil rights movements, social safety nets, and foreign aid all seem like huge wins, and major parts of the story for why the world seems to have gotten better over time.”
There is also reason to believe that as we get richer, we get better at dedicating resources towards equity, the environment, and to safety. This means that by 'rowing' you create more interest in 'steering' and 'equity'. So these seemingly differing aims feed into each other.
The Entrepreneur Ship
On the subject of boats, next month the long-time supporter of entrepreneurs, Guy Rigby, is rowing across the Atlantic with David Murray. If successful, they will be the oldest pair ever to row any ocean.
We’re a supporter of their efforts (they have kindly put our logo on the ship) as they’re raising money to support social entrepreneurs. The Entrepreneur Ship will work with UnLtd to co-fund a technical assistance package designed to support diverse leaders from start-ups to sustainable investment over the next 5 years. Find out more about supporting them here.
Big Deal
As Sam Dumitriu writes on the blog, our big cities often function as if they were small cities, losing the benefits of agglomeration. As the Centre for Cities has shown, improving public transport is part of the solution: “67% of people in big European cities can reach their city centre by public transport within 30 minutes, compared to only 40% of the people in Britain’s big cities.” Sam also argues for the densification of cities and suburban intensification near public transport.