Darren Westlake is co-founder and CEO of Crowdcube, the pioneer and leader of the equity crowdfunding industry.
Of the thousands of exciting, innovative businesses who have approached us for funding over the past decade, almost all of them have successfully identified a gap in their market based on an insight into what customers want or need. This could be anything. In our current economic climate, it could be the manifold difficulties people have keeping tabs on their spending. It could – in this new age of conscientious capitalism – be the groundswell of interest in impact investment. Or, as we battle with food security and scarcity issues, it could be introducing farming methods that are simultaneously efficient and sustainable.
In almost all cases, identifying this gap – the ‘diagnosis’ – is the easy bit. The hard part, which separates the comparatively small number of companies for whom we decide to facilitate funding rounds from the large majority that we have to turn away, is prescribing the correct medication to the problem that founders have so astutely identified. For every Moneybox saving app, Clim8 ESG investment platform or Small Robot Company ‘farmtech’ solution, there are dozens of other money saving ideas, green investment start-ups, or Artificial Intelligence solutions that we are forced to turn down because their ‘prescription’ to the diagnosis was wrong.
When delivering his fateful mini-Budget, Kwasi Kwarteng was correct in his diagnosis of our stuttering economy. We have an acute need for radical supply-side reform that boosts growth and improves productivity; two vital indicators of the health of any economy, and ones in which we have done poorly over the past decade. Much like those founders who were unsuccessful seeking access to our retail investors, where Kwarteng and the former Prime Minister went wrong was in the prescription that they decided to administer the country.
This – at least – was the prevailing sentiment of a recent poll we conducted of over fifty founders in the UK’s genuinely world-leading start-up and growth stage sector, which reveals the political priorities of this important cohort. Our findings, which broadly coalesce around three main themes, should prove instructive to our new Chancellor, Jeremy Hunt, as he puts the finishing touches to his upcoming Autumn statement.
Almost every single company that comes to us these days has a social mission beyond its core profit-making business model. Consequently, the growth stage community of which Crowdcube, is a part, was sceptical of the deregulatory ‘race to the bottom’ that was evident in parts of September’s mini-Budget. Introducing policies that might help but at the expense of others or the natural world will not be received favourably.
Instead, we feel growth should be driven through subsidies and grants that incentivise the ‘correct’ type of growth. Growth which doesn’t harm the environment, or which will helps people – namely their staff – lead successful, fulfilling lives, while simultaneously helping business flourish.
Specifically, nearly half of all the companies we surveyed (53 per cent) listed targeted subsidies that encourage them to invest in their business in a way that was environmentally-friendly as one of their top three policy priorities. And over a quarter (26 per cent) want better access to subsidised training and upskilling initiatives for their staff.
In searching for ways to fund these incentives and subsidies, Jeremy Hunt would do well to note that many businesses seemed willing to stomach a higher tax burden if it meant they received help investing in their businesses, staff had better access to training, and they saw improved physical and social infrastructure. They were sanguine about the effect that higher corporation tax and retaining the top rate of income tax would have, with just a quarter supporting lower corporation tax, and a measly 8 per cent behind scrapping the 45 per cent rate of income tax. A quarter of the founders (24 per cent) listed the introduction of a carbon tax as one of their top three policy priorities.
Individual policies aside, founders also made plain their desire for a relationship reset between the Government and their sector. Strikingly, only a fifth viewed the previous two administrations to have been a net benefit to their business, compared with 35 per cent who viewed them as a net detractor. Hunt has already gone a long way to repairing relations by retaining the Enterprise Investment Scheme, a lifeline incentive that makes investment into growth stage companies tax deductible, from his reversal of Kwarteng’s mini-Budget.
Sunak’s time at the Treasury, in which he introduced exciting, innovative, entrepreneurially minded policies like the Future Fund, also suggests relations can become more cordial as his administration matures. However, according to our research, such a reality is only likely to materialise if the constant rhetorical promises of ‘jam tomorrow’ and ‘sunlit uplands’ of Brexit are replaced by material benefits. Just one of the founders we surveyed was optimistic about the reduction in bureaucracy that Brexit has the potential to precipitate.
Since I founded my company in 2011, I have seen thousands upon thousands of pitches from businesses. Some, like Monzo, Brewdog and Revolut, which we put forward to our retail investors, have gone on to become household names. Of the ones who we did not back, only one cohort has been less likely to succeed than those who, like Kwarteng, prescribed the wrong medicine to the right diagnosis: those who have refused to listen to, seek the counsel of, or engage with the very people upon whom your success is contingent.
In Jeremy Hunt’s first big pitch to the UK business community in a few days’ time, he must listen to the demands set out in our research, and get both his diagnosis and prescription correct.