Yahoo Finance Cummings' plan to create a UK trillionaire tech giant is admirable - but is it realistic?
Can technology businesses in the UK grow to the size of American giants such as Apple and Amazon?
So far, the answer has been a firm no. Plenty of promising start-ups have reached so-called “unicorn” valuations beyond $1bn (£781m), but they’ve failed to make the leap to become truly global technology giants.
So the emergence of a new plan from Dominic Cummings, the Prime Minister’s chief advisor, to create technology businesses worth $1 trillion in the UK was met with rapturous praise by many technology investors and entrepreneurs.
Cummings suggested that a no-deal Brexit could allow the Government to offer state aid to the country’s most promising technology businesses in the form of investment and other benefits, according to a report in Business Insider. This could, Cummings hopes, create a way to foster an environment in which leading British businesses finally grow to the size of American rivals.
But while many tech leaders may be on board with the idea, support was not unanimous. Some experts worry that Cummings’ vision for a British Silicon Valley will be a costly exercise with little chance of success. Could his grand plan really work?
The case for Government helping to support a $1 trillion UK tech giant
Among many venture capitalists, weary of seeing promising British start-ups such as DeepMind, Magic Pony and SwiftKey, sell to larger American giants, Cummings’ comments are welcome.
They point to how America has treated its own technology start-ups as the greatest example of this scheme’s potential success.
“Part of the dark secret of American tech capitalism is that it is much more interventionist at times through the Defense Advanced Research Projects Agency (DARPA) and the military,” says Rohan Silva, a former Number 10 advisor.
The US government has been able to pour taxpayer funding into businesses through vehicles such as DARPA, and has handed businesses incentives to help them grow without becoming tangled in red tape.
The UK, meanwhile, already lags behind other EU countries on how much it spends on supporting its businesses. The UK’s 0.38pc of GDP spend is far behind France’s 0.76pc spend and Germany’s 1.51pc of GDP spent on supporting its businesses.
In Britain, many investors have a shopping list of state aid ideas which could benefit the UK, beginning with the Government improving tax relief on venture capital trusts (VCTs). Their hope is that a radical change in the tax incentives to back investors could see a funding boom.
“With a few modest changes to the VCT investment rules, potentially made possible by leaving the European Union, VCTs could support technology businesses for longer to make a trillion dollar technology company a possibility,” says Ed Lascelles, a partner at AlbionVC.
More radical steps could be on the horizon, though. Should the UK crash out of the EU without a deal, limits on state aid would come off the cards. Even if a deal is agreed, right now, the UK is standing firm on wanting to introduce rules allowing it to provide government funding for high-risk, but potentially high-reward, start-ups.
Among certain sub-sections of Britain’s tech sector, hopes are high that such a move could prove a boon. “The UK’s plans for large-scale state aid for deep tech will seem prescient in a few years,” says Torsten Reil, who sold his company NaturalMotion to video game developer Zynga.
“Most tech companies will do just fine with raising VC money. But there are some technologies whose importance to society is so high and where capital requirements are outside private funding capabilities, that targeted state aid may be necessary.”
According to Reil, “the EU should review its current restrictive policy too. AI, semiconductors, batteries and defence are fundamental to European sovereignty”.
The case against Cummings' plan
Not everyone is so optimistic. Cummings is said to have come up with the plan to use taxpayer cash to grow British champions after obsessing over the takeover of DeepMind by Google, a company he has previously bemoaned was sold “for trivial money without the powers-that-be in Whitehall understanding its significance”.
The view is that the UK Government should have, instead, stepped in to support DeepMind as an independent British company.
Yet, industry insiders say there are flaws in this logic. “Had the government bought DeepMind in 2014, there is no guarantee they would have owned, six years later, the same DeepMind as exists today,” one source close to the company says.
Whether DeepMind would have proved a sound investment for the taxpayer is another matter, given the research-focused firm has been loss-making every year since it was founded. Opening up the door to funnelling taxpayer cash into risky ventures, with the Government deciding the winners, should be viewed with “some suspicion”, the source said.
Matthew Lesh, head of research at the ASI, agrees. “Bureaucrats lack the knowledge and skills to pick winners,” he says. “We should leave that task to private investors who can risk their money, not ours. We should not throw away taxpayer money on the roulette table.”
Opening the door to further Government backing of start-ups is not the only option available to ministers. There are other levers at Cummings’s disposal.
“We should be thinking about how we help companies expand faster into different geographies before they get copied,” says Brent Hoberman, the veteran tech entrepreneur behind companies including Made.com. “We already have things like [research body] UKRI. Can we do more? Yes, and I’m all for the Government trying to work out ways of doing more. There is, however, quite a lot of capital for great tech firms.”
He says around a third of venture capital in the UK already comes from the Government, through various schemes such as support through the British Business Bank. “The question is, do we want more situations like OneWeb [the space start-up the Government invested in earlier this year]? That’s a tougher one.”
After all, an end to state aid rules, allowing for further government backing of start-ups, may not prove the fix to Britain’s tech dilemma that ministers are hoping for. Further capital into the field could help grow businesses to a larger scale. Yet, money is only one part of the equation in building technology leaders.
Patrick Pichette, the former chief financial officer of Google and current Twitter chairman, last year said there were many things that could hold British start-ups back.
“Will they trip over whether they don't get the liquidity, will they trip over because they don't get the coaching from people who handle these companies, or will they not get the proper financing to enable them to be free and build the company they want to?"
The Government may be focused on fixing the latter. But, the jury is still out on whether it would be enough to solve the UK’s tech dilemma.
