Exactly what impact will the Tech City Launchpad competition have?

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Update: In the Budget 2013 speech, George Osbourne announced a new tax break for employers called the Employment Allowance which “will work by taking the first £2,000 off the employer National Insurance bill of every company”. It’s great to see blanket measures like this that benefit all companies, no matter where they’re located and I’d rather the powers that be focus on measures like this that will have a real impact and clear benefit, than PR/fluff initiatives of questionable benefit like the Tech City Launchpad and the recently-announced new “High Growth Segment” that will supposedly unleash a wave of tech companies floating on the London Stock Exchange (as if they couldn’t already float on AIM, like ASOS did).

So, top marks for the Chancellor. However, I think he can do more. Specifically, I think the next step should be to introduce an exemption on employers’ NICs for early-stage startups who pay salaries out of angel or seed capital. Implementing such a measure would be straightforward (HMRC could leverage the mechanisms already in place to support SEIS and EIS) and would provide a very powerful incentive for startups to employ people, and further encourage potential angel investors.

I hold very strong views on what the government’s role in encouraging enterprise should be. I’m also not a fan of targeting specific geographic areas. So, as you can imagine, the new Tech City Launchpad competition is getting right up my nose.

This is a competition for funding in digital projects. From the literature: “We are focusing on the existing technology and media cluster in East London, and we encourage companies within it to apply. However, the competition is open to companies across the UK, if they wish to carry out a project in the Tech City area.”

The first startup I was involved in (more than 15 years ago now) was based out of a spare, windowless room in the offices of one of our angel investor’s established companies. The second (during the dot-com boom) was based in Ladbroke Grove because that’s were we found cheap office space. The startup I angel-invested in recently doesn’t even have an office yet – it’s currently run out of the founder’s home, outside of London entirely.

Cheap office space is the primary reason a series of startups have sprung up around Shoreditch (and I hear that rents are rising rapidly). I believe that the purported benefits to a startup of setting up shop in Shoreditch are overstated (I’m not saying that they don’t exist, merely that they are exaggerated or would also apply were a startup to locate themselves in another part of London), which means that the rationale behind encouraging startups to locate themselves in that specific area is tenuous at best. Unfortunately, the government seems to have bought into the “Silicon Roundabout” hype – a media-friendly story that’s being pushed by various parties, including some who stand to benefit from an influx of startups to the area (and who are, of course, absolutely delighted with the Tech City Launchpad initiative).

The government would  be far better off supporting entrepreneurship across the whole of the UK, rather than just in one tiny area and I question how effective a competition like this will actually be, particularly given the fact that political considerations are likely to affect the judging (which pretty much rules out any startups operating in the financial sector).

I’d far rather see the government taking steps that will support all startups, no matter where they’re located.

EIS is a great scheme but it’s somewhat limited in scope. Is there something more the government could be doing to encourage investment by VCs and funds into UK startups? (And, by the way, startups don’t typically generate a profit for at least a couple of years, so giving tax credits against corporation tax is of limited utility).

How about tax breaks on, for example, employers’ national insurance contributions, to make it easier and cheaper for startups to employ people?

How about expanding and improving the talent pool from which tech startups can recruit by  encouraging and facilitating engagement between startups and universities? Is there any real reason why students couldn’t do work experience, industrial placements or projects for tech startups?

Such initiatives would have a far greater long-term impact than throwing £1m at a small number of startups in one tiny area of the country. Of course, they wouldn’t generate the same media coverage but the government should really be asking themselves whether they want to give the appearance of encouraging entrepreneurship or whether they actually want to do it.

Written by jackgavigan

May 9, 2011 at 4:26 pm

Posted in Entrepreneurship

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