Recommendations from Seedsummit

Matt Mead - 04.02.2011

Seven key recommendations came out of a meeting of angel investors for stimulating UK economic growth.

Last week Seedsummit held a gathering of seed stage angel investors from across Europe at Techhub to discuss how government policy is affecting investors and how policy could be altered to make the market operate better and stimulate growth in the economy.

The good news is that the Government is genuinely keen to engage and in fact No. 10 asked Sherry Coutu to help convene this meeting for them. Mark Prisk, Minister of Business and Enterprise attended to listen and the debate covered a number of topics that are currently under consideration across Government departments. Here is a summary of some of the areas of debate – do let us know your views and whether there are big areas for growth companies that we have missed!

1. Visas

It is almost impossible to get cutting-edge technology experts to work in the UK without an HSMP1 Visa, so the possibility of scrapping these Visas is a genuine concern. Tech companies with high growth potential have to recruit the best talent to be globally competitive, so the government should be doing everything possible to remove these barriers to entry.
If MBA students can’t easily work in Britain after their MBAs end, expect to see a drop off in people coming to study in the UK.
The Entrepreneur's Visa looks promising but if it is limited to just founders then there’s a fundamental misunderstanding that great businesses are built around great teams and not just a single individual.
The proposed cap of 1000 for entrepreneurs’ visas is far too small.

2. Procurement

Many investors won’t invest in companies that are in any way reliant on selling to government, as the sales cycles are far too long and unpredictable.
Procurement managers in the public sector are not sufficiently incentivised to save money.
We need to ‘attack the culture of procurement’ in the public sector and start celebrating and promoting those with the best savings rather than the biggest budgets.
Not enough government contracts are going to SMEs (unlike the US where 25% of procurement is through SMEs). Two suggestions were raised to address this. One was for the government to give a proportion of the procurement budget to the TSB to procure from innovative young companies (in recognition that different procurement skills may be necessary to procure from smaller companies), and the other was to copy the US model of shifting the burden to the contractors and stipulating that they had to spend 25% of their budget on SMEs (this in turn could lead to much better collaboration between large and small companies than is currently the case in the UK).

3. Employment

Early stage companies need greater flexibility in employment law. As a result of their rapid growth and development different skills are needed at different times. This need for change can put start-ups in the difficult position of having to keep ineffective staff or face employment tribunals.

4. Investment Incentives– EIS and VCTS

On EIS the debate focused on the need to widen the qualification criteria to take a closer look at loan and preference share structures. Both give much greater flexibility for investing in early stage but both are either prohibited or very difficult to structure under EIS.
To encourage a higher volume of investment we could look at raising the limit of how much an individual can invest in EIS.
The debate on VCTs looked at where they currently invest and whether the investment was directed in the right areas for growth
All VCTs benefit from the same level of tax break which means that, not surprisingly, the VCTs are all skewed towards ‘profit making companies on AIM’ rather than technology start-ups. Some people called for the complete cut in EIS tax breaks for VCTs (which would pay for the other requests made in the meeting), others called for a change in the rules to reward those who took greater risk by investing earlier and in technology.

5. Equity Participation and Incentives -EMI

There’s an issue of who qualifies for EMI – it currently only catches employees and excludes business mentors and others who only have part time involvement.
There is an ambition to develop a broader entrepreneurial culture and we should be happy to make more millionaires, and that is the way to spark excitement from entrepreneurialism. The best way to do that is through share options for the core team. Don’t take tax on a ‘paper valuations’ but on exit.

6. Broadband

A much faster and bigger broadband infrastructure is needed across the country – this access to broadband is one of the reasons Scandinavia has produced so many interesting digital companies
London has appalling broadband access and although there is recognition of the need to take broadband to all areas – incentives should not ignore London

7. R&D Tax Credit

These are vital to young growing companies – the cash received can be vital to cash flow. Any review of the system should not endanger the support it provides to early stage business.

NESTA has a number of research projects underway relating to entrepreneurship, Venture Capital, angel investing and business support so watch this space for updates on our publications.

As you can see lots of ground was covered in a very lively, stimulating two hour discussion.

Now is the time to feed in to the these debates so please feel free to add you comments below, or follow our debate on LinkedIn.