Before you talk the UK down…… 🇬🇧

I love the UK startup economy.

And I was thinking recently about how there’s a lot of doom and gloom surrounding the UK economy and the UK in general… it’s actually pretty exhausting - especially when you’re trying to build a company.

So, I wrote a LinkedIn post about how (on a positive note) the UK is a great place to start and run a tech business/business. A fair few people seemed to agree, some disagreed, so I thought I’d explore it a bit further and more in depth in this newsletter.

(Disclaimer: Of course, there are a lot of things the government could be doing better in general for the UK public. This is my POV from my side of the tech world.)

THE GOOD:

I believe deeply in startups, founders and entrepreneurs ability to pull the UK out of its current economic stagnation. The more successful startups, the more people being employed, the more money going around and taxes generated, the more investment, the more successful founders who then become investors/advisors– the cycle continues.

The UK is not without it’s faults, but I think we need to reflect on the strength of the UK business ecosystem:

1. Generous S/EIS tax breaks that encourage investors to back your business.

2. R&D tax credits to reduce your tax bill or claim cash credits as a proportion of their R&D expenditure.

3. The Patent Box tax regime that allows you to apply a lower rate of Corporation Tax (10%) if you hold a patent.

4. Government startup loans that are typically low interest and with free mentoring.

5. Innovate UK Grants for funding and support for science and technology innovations.

6. Capital Allowances that allow businesses to write off the cost of certain capital assets against taxable income.

7. Venture capital investment is the highest in Europe, attracting nearly $22 billion in 2023, more than France and Germany combined.

8. Various initiatives like Help To Grow: Management Course (Government funded) and The Goldman Sachs 10,000 Small Businesses UK programme.
   

THE BUDGET:

The budget always gets my attention to see what it means for UK business. There wasn’t a an enormous amount in it that affects the startup ecosystem (unless the Non Dom new rules end up adversely affecting investment) - but some key points that may make a change:

• Huge (and welcome !) U-turn on rules around income threshold for angel investors. It has been re-instated to £100k, from £170k which was going to unfairly various groups and in particular women.

• The chancellor shared that the VAT registration threshold will be increased from £85,000 to £90,000 from the start of April, saying it would help “tens of thousands of businesses”.

• LIFTS Initiative: The Long-Term Investment for Technology and Science (LIFTS) initiative aims to unlock over £1bn in private capital, including pension funds, to support the UK's innovative tech and science companies with a £250m investment from the British Business Bank.

• Growth Guarantee Scheme: Extending the Recovery Loan Scheme under the new name Growth Guarantee Scheme, this program offers a 70% guarantee on loans up to £2m to support approximately 11,000 small businesses with their growth and recovery efforts from 1 July 2024 to 31 March 2026.

ONE BIG CHANGE TO NON-DOM RULES…

One announcement was a policy that the Conservatives have stolen from Labour - the changes to the Non Dom rules. At Founder + Lightning, we’re in the midst of fundraising for our next fund, so I’m regularly talking to investors. Some of them have been taking advantage of Non Dom status over the years. I’ve spoken to three investors in the past few months alone that will be taking their money out of the UK, and setting up in placed like Greece or Italy who have more generous set ups (and weather !) for foreign investors.

I understand the politics of the decision. Labour, who are almost certain to get in made a big fuss of the money that will be raised from this policy and had already spent most of the expected gains. So, but stealing their thunder the conservatives know that Labour will need to find other ways to raise money, that will be less popular with the electorate.

But, I’m very concerned on the unexpected, and unintended consequences that this will have on investment in the UK. Non Dom citizens already had to pay 40% to bring their money into the UK - before then making their investments. Being taxed on their global income (which may include inheritance tax too) and assets means they now have even less incentive to stay here - just at the time we need more investment coming into the ecosystem, not less. We’ll see how it plays out, but I’m not convinced this will ultimately benefit the UK economically - even if the electorate think its “fairer”.

THINGS TO CONSIDER:

The 99.9%

We celebrate large businesses too much and forget about the SMEs steadily growing and bringing in key money for the UK economy.

I don’t think many of us realise that:

In 2023, there was an estimated 5.6 million UK private sector businesses and…

• 5.51 million were small businesses (with 0 to 49 employees), 99.2% of the total business population.

• 36,900 medium-sized were businesses (with 50 to 249 employees), 0.7% of the total business population.

• 8,000 businesses were large businesses (with 250 or more employees), 0.1% of the total business population.

• Large businesses are only 0.1% of the business population ! That 99.9% is absolutely essential to our economy.

But while 99.9% of our economy is SMEs (5.55 mil businesses), 47.4% of our total turnover is made by these large businesses (8,000 businesses). How can we boost the SMEs to bring in more ?

The answer to a lot of that is digitisation…So many of these businesses will still be still hanging onto manual, time-consuming processes when the opportunity to put some tech behind will boost revenue, productivity, market share and so much more.

This is something I’ve become slightly obsessed and see as the biggest business opportunity of the next 5-10 years. I wrote [a post] about this recently too !

OUR BIG NEWS:

We’ve just invested in Lone Design Club.

Lone Design Club (LDC), is an online retail platform that helps digital brands and commercial property landlords execute and measure their omni-channel retail success.

We invested in LDC after seeing how passionate, driven and impressive Rebecca is as a founder, the amazing team behind the business Alice Rose McAnulty, Laura McCluskey, Kenny Edwards and of course the unique problem the company solves for brands and landlords.

We are excited to take what LDC has built to date and now integrate the necessary technology and platform that will scale the business and build upon LDC’s existing success.

As with every new investment we make, it’s an honour to be invited in as a partner to help take things to the next level with technology.

Thanks for reading !

Always open to feedback, content suggestions or collaborations. Tell me your thoughts.

All the best,

Matt Jonns