UK start-ups lack government support, say MPs

The government is failing to secure financial funding for UK start-up companies, warns the Science and Technology Select Committee

The government is failing to secure financial funding for UK start-ups, the Science and Technology Select Committee has warned.

“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 committee chairman Andrew Miller MP.

“British entrepreneurs are being badly let down by a lack of access to financial support,” he said.

According to a report by the Science and Technology Select Committee, this is forcing UK technology companies to seek financial funding from overseas. This often leads to small companies being bought up by larger foreign companies, rather than having the chance to develop into enterprises that would benefit the UK in jobs and wealth.

The report states that, while there is government grant funding available, the application process is often highly bureaucratic and insufficient to allow start-ups to develop into fully fledged businesses.

The Science and Technology Select Committee revealed that bank lending schemes backed by government often required entrepreneurs to put their homes up as security to obtain loans.

“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. “The government needs to look at how it can provide the infrastructure to support innovation by ensuring small technology firms have access to finance, facilities and advice.”

The committee’s report calls on government to change financial frameworks to help smaller UK start-ups to grow independently, rather than selling to foreign investors.

“With options limited to them, technology companies look for alternative investments to help them sustain growth, however, one of the most significant incentives is due to end on 5th April 2013, as the absolute saving of Capital Gains Tax on Seed Enterprise Investment Scheme (SEIS) comes to an end,” said Dermot Campbell, Managing Partner at Kuber Ventures.

“With the budget approaching, this call to arms by the select committee should play into the wider issue faced by the government, namely that the lack of commercial funding is stifling the future growth of the economy and should be addressed with both commitment and urgency,” he said.

Speaking at the Web Summit London at the beginning of March, Tech City CEO Joanna Shields, said that the Tech City initiative will bring more investment to UK start-ups.

“The start-up phase we’re really good at,” said Shields. “Success in the UK is when companies can create, grow and stay to participate in the economy. In the past the UK has been seen as an incubator. A lot of the best companies sought other markets like the UK for growth.”

During her interview at the Web Summit, Shields agreed that Tech City was a marketing initiative: “The opportunity needs to be exploited, so companies feel comfortable in investing,” she said.

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