Thursday 28 January 2021 3:06 pm

Concrete changes can allow Britain’s digital firms to fly

Chancellor Rishi Sunak is said to be looking at changing listing rules and regulations to give the UK a shot at keeping and attracting the brightest tech firms

Britain’s technology entrepreneurs seem the last people who need any attention from Government right now. Valuations are soaring. IPOs are being lined up. Even as the pandemic constrains our daily lives, businesses that will deliver the jobs, growth and tax revenues of the future are thriving.

But in the great global race to create and hold onto the most ambitious technology businesses the UK is falling behind.

There is a single tech-first company in the FTSE 100 – 40-year-old Sage.

The scale of the challenge is clear if you distinguish between firms simply taking old business models online – like retailers – and the true start-up to world-class deep technology companies like DeepMind and Graphcore.

The LSE does not have a single one of these firms listed.

Meanwhile, too many brilliant companies nurtured in the UK are being snapped up by overseas buyers before they have grown to realise their potential.

The good news is the government understands and is taking action.

Boris Johnson’s pledge to create a science superpower comes with not only with more money for research and development but two significant reviews – Lord Hill’s into listing rules and Ron Kalifa’s into fintech.

With Brexit done we have the freedom to move fast on both.

So, it is time now for those who have built major companies to make some specific, practical suggestions to ensure Britain succeeds.

As the founder of firms including Cambridge Neuro-dynamics, Autonomy, Blinkx, Darktrace and Luminance I have proposed the following.

Firstly, we should build on the success of a tax incentive created by a previous Conservative administration – the Enterprise Investment Scheme. It encourages investors to place pre-taxed income into qualifying companies and has pumped more than £22 billion into the start-up economy so far.

Yet current rules mean that firms which intend to go public are not eligible. This should be reconsidered to enable the transition rather than the sell out.

Secondly, we can address the dearth of technology and science companies in the FTSE100 by introducing a delisting fee when a company exits and by creating a junior market for science and technology.

The funds from this can prime the market-research funding model that no longer functions. More firms will mean more analysts in this sector with the depth of knowledge to properly understand them, which in turn will lead to smarter investment.

If we are really going to create more billion-pound businesses, we must also think hard about the obstacles that stop late-stage companies raising money. They demand greater sums to grow but due to regulatory anachronisms, institutions like banks and insurance companies often face regulatory barriers to how much they can invest in these types of companies.

While protecting the financial stability of those institutions, we should address this.

Investors should also be allowed to decide for themselves whether the corporate governance of fast-growing technology firms is good enough. A rulebook should not stop them from backing a company because – for example – not enough shares are publicly traded when it lists, as is often the case in the tech stars.

The interests of these firms and the UK itself are – after all – deeply entwined. They will drive our economy in future, but almost every one of them has relied in some way on the British taxpayer as they have developed their technology. They shouldn’t be easily spirited away from us.

In the US companies protect themselves with a ‘poison pill’ clause, but British companies cannot do this. Is a solution to change the rules to ensure that where a potential buyer of a UK firm has a poison pill clause, the target company can enable one too? The new National Security and Investment Bill will protect businesses from foreign takeovers where there is a risk to national security, so now let’s do a little more to level the playing field.

Taken together these ideas would see more start-ups attain real scale and leave Britain with more founders to inspire the next generation of entrepreneurs. It is thrilling to see a company you have created take a transformative technology towards a listing as I have with Darktrace. Few in the UK have shared this experience and we need to make sure more follow.

Those founders should see the UK as the obvious place to launch, grow, and list deep technology businesses. We already have the talent. A few select reforms will help us create the best business environment in the world for innovation.