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Government is failing technology entrepreneurs, say MPs

Derek du Preez | March 14, 2013
Lack of funding and the inability to foster long-term SME growth is stifling the UK’s tech scene.

The UK government is failing technology entrepreneurs and does not have a coherent strategy to support the commercialisation of technology innovation in the UK, MPs have warned.

A report issued today by the Science and Technology Committee points to the UK's apparent inability to foster small and medium businesses until they become 'tech giants', as well as a lack of capital funding due to the effects of regulating to de-risk pension funds.

This will come as a blow to the government, which has been making great attempts in recent months to boost investment in the technology start-up scene, particularly in London's Tech City. According to the committee's report, much more could be done to improve the UK's technology prospects and create long-term, stable growth for the industry.

"The UK's university and science sector is a global success, but the challenge for Government is how that world class academic research can be translated into commercial activity," said Chair of the Select Committee, MP Andrew Miller.

"Whilst we are encouraged by the work of the Technology Strategy Board (TSB) and the Catapults, British entrepreneurs are being badly let down by a lack of access to financial support and a system that often forces them to sell out to private equity investors or larger foreign companies to get ideas off the ground."

Proper financing was highlighted as one of the primary concerns in the report. For instance, the committee found that entrepreneurs are too often being forced to seek private equity investment, which means that small companies are being bought up by larger overseas companies before they can develop into the medium sized enterprises that would produce substantial jobs and wealth in the UK.

The MPs said that the government may find it more beneficial to support and develop these entrepreneurs into small and medium businesses, rather than spending its time trying to attract large companies from overseas to the UK.

One of the main problems with financing is that regulation to de-risk pension funds has inadvertently closed off a long-term source of capital for firms that need time to develop technologies.

The committee found that government grant funding is often highly bureaucratic to apply for and is only enough to 'get an idea off the ground'. Also, despite government efforts to encourage bank lending to business, these schemes often require entrepreneurs to provide family homes as security to obtain the loan.

"Equity investments have a place, but too many companies are forced into over-reliance on this route because other types of funding are unavailable," said Miller.

"Pension funds used to be a source of patient capital for firms that needed time to bridge the so-called 'valley of death' and get new technologies to market, but regulation has changed the way they operate and restricted this sort of finance."

 

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