UK support to startups

UK Support to startups: Too little to late?

A response to the Government’s announcement of start-up funding from Cedric Torossian one of Decksender’s investment community.

Finally after France and Germany and many other countries, the UK government announced a £1.25 billion plan to support startups. That might seem like a lot of money to us but it actually amounts to very little. It is hard to know how many startups there are, but we know that 672,890 start ups were founded in the UK in 2018/2019 tax year…that means that if the £1.25 billion only went to those new startups they would get less than £2,000 each…so we can safely assume that this “bailout” corresponds to less than £1,000 per startup in total. Big deal indeed, hopefully they will not binge too much on that, and it is only too right that with such a generous package tight strings are being attached, read more here.

Meanwhile the UK bailout of banks in 2008 reached nearly £500 billion and there are 345 banks in the UK…and with virtually no real strings attached. This comparison of bailouts is of course a simplistic way to look at things but still it shows a huge disproportion of how our governments look at banks versus businesses that have the most potential to generate real wealth and bring competitiveness to our economy, not to mention the talents they attract and develop.

Unlike with banks all money given now to startups will be returned back to the national economy under the form of salaries, services (accountants, lawyers, consultants…) and taxes as startups usually are well integrated in to local economies and do not undertake fiscal optimisation, dodging taxes in plain English. Startups employ a huge number of people and it is better to help them keep those jobs rather than having more unemployed people as this would also potentially increase cost on benefits.  So even with the help on startups that will fail the money spent will not be lost for the nation, it will return to the economy and thanks to the successful ones overall growth will be generated, and that is called the keynesian multiplier. 

Meanwhile with the bank bailout where is the £500 billion? We know £16 billion went to bankers’ bonuses the year after the 2008 crisis they created, so yes nearly 15 times more than what we are giving startups today…

Now what do entrepreneurs do with the money they get when they finally do an exit? Often they reinvest in other startups  – which by the way the banking system fails to finance – risking their own money…

Hence the totally well funded logic to be so careful not giving too much to startups whilst supporting banks at any costs. Really?

There is no doubt that startups have been and will be hurt by Brexit and now this bittersweet plan to rescue them is actually revealing about our government’s commitment to make Great Britain great again….one might have expected the government package for example to include more tax incentives to private startup investors investing in early stage startups. Instead the last budget has made it more difficult for those investors to get rewarded or de-risked for their support.

And if this was not enough nonsense there is an irony in all of this:  Startups are creating, with the fintech and blockchain revolutions, the disruption that is potentially going to destroy the whole opaque and archaic banking system as we know it. 

So the question is what is the government going to do when its darling (banks) collapse as it fails to adapt to startup’s needed innovation? Could this be precisely (part of) the reason the government is let’s say lukewarm in its support to startups today?   

Reach out to Cedric, Linkedin.

Tell us what you think, drop a comment below.

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