Why the UK keeps losing promising startups

The UK is in danger of becoming an 'incubator economy' whose startups move overseas as they scale, according to lawmakers.

The House of Lords Communications and Digital Committee says the UK needs to do a better job supporting UK AI and creative tech startups.

Committee chair Baroness Stowell said the UK has the potential to “be a powerhouse of growth for AI and creative tech companies”, but so far these efforts have failed.

"We are at real risk of becoming an incubator economy instead, where UK start-ups develop innovative products and services before selling out or moving abroad, so other countries derive the economic benefit,” Stowell said.

“Too often it’s a case of the UK begins, other countries cash in. That has to change."

In recent months, UK fintech unicorns Revolut and Monzo have both announced that they may list in the US rather than the UK stock market.

Barriers to successful scaling up in the UK include limited access to capital compared with other countries, the committee warned. There are also challenges in recruiting in-demand tech talent along with a business and investment culture that can be too risk averse.

The report also highlighted a complex array of well-intentioned government schemes, including financial reforms, tax credits, investment incentives, and innovation focused initiatives - all of which actually create further barriers and bureaucracy.

The committee said the government should resist the urge to launch new schemes and instead focus on consolidating and streamlining existing programs for maximum impact.

"Action must be taken to unravel the complex spaghetti of support schemes available for scaleups. Various tax credits, British Business Bank funds and investment incentives combine to be so hard to navigate that companies have to employ consultants to advise them," Stowell said.

"We urgently need to simplify the help available and ensure it is set up to support our most innovative scaleups to grow, while also offering value for money to the taxpayer."

The government’s industrial strategy should provide a coherent, cross-sector vision for how technology scale-ups will be supported to drive economic growth, while financial reforms should be accelerated to unlock domestic growth capital.

Similarly, more should be done to incentivize founders to stay in the UK to grow their businesses, and public support for innovation should be streamlined. The government should also commit to AI delivery and sustain investment in the creative industries.

"Every UK unicorn that gallops overseas to list, or sells out to foreign investors, is a blow to UK PLC and our aspirations for growth," said Baroness Stowell.

“The government’s new AI Opportunities Action Plan is a good start, but a plan in itself is not enough. The key is its delivery. The government will need to drive through change to address fundamental barriers such as limited infrastructure and comparatively low levels of adoption if it is to have an impact."