Britain’s venture capitalist community has warned that the uncertainty surrounding the Conservative Party leadership contest risks the UK tech industry losing momentum.
Unless candidates drop out of the race early, the UK won’t know who the next prime minister will be until 5 September.
But venture capital (VC) firms are worried that being left in limbo for nearly seven weeks could jeopardise growth at a crucial time for the industry.
VCs are also in the dark about where the remaining Tory candidates will land on specific tech policies after the resignation of Boris Johnson triggered a leadership contest.
For example, the controversial Online Safety Bill has been shelved until parliament returns from recess. Tory leader candidate Kemi Badenoch has indicated she would axe the legislation if she were to become prime minister.
“The uncertainty around who will become the next prime minister is eclipsed by the uncertainty facing Britain’s tech community,” Stephen Page, founder and CEO of SFC Capital, told UKTN.
“The government’s disruption is self-inflicted, but the disruption caused to our early-stage funding market, on which British startups depend, has been entirely inflicted upon them.”
The SFC boss expressed concern that the UK is “quickly losing ground as global leaders in key sectors such as fintech”.
Data released in January showed that UK fintech investment reached a record high of $11.6bn in 2021.
Across tech as a whole, UK tech startups raised a record £29.4bn last year. That trend continued in the first three months of 2022, with UK tech startups raising £9bn – putting it ahead of India and China and behind only the US during that period.
But there are concerns from UK investors that the political uncertainty will halt British innovation at a time when public and private markets have been battered by soaring inflation and rising interest rates.
‘We’ve had too many Old Etonians’
David Foreman, managing director of Manchester-based VC Praetura Ventures, told UKTN that while the previous government had “many issues”, it “had actually started to see results” from some of its investments into UK tech.
Foreman added that “whilst progress was slow, there was also a tangible sense of conviction over the need for levelling up initiatives”.
He pointed to the British Business Investment’s Regional Angels Programme, which sought to address regional imbalances for tech investment.
Praetura, as a Manchester-based firm, has put a significant emphasis on supporting Northern startups to grow the region as a leading tech hub. It recently launched a £20m life sciences fund with the specific aim to support startups in Greater Manchester, Cheshire, and Warrington.
Foreman said that the next prime minister should have a background that is more reflective of the UK.
“We’ve had too many Old Etonians, with a ‘jobs for the boys’ approach, in the post. So, I’d like to see someone different being given the opportunity to lead the country,” he said.
Tory leadership race unknowns
There is, as of now, a fairly limited amount of information on the prospective Conservative leaders’ plans to support startups.
Martin Mignot, partner at Index Ventures, told UKTN that it’s “vital that the next government is fully invested in making the UK as welcoming as possible for these early-stage businesses”.
Mignot said that the next prime minister should “put talent at the top of their agenda” and improve stock options to “give employees a real stake in their company’s future success”.
He added: “We welcomed the work the previous government was already doing in this space and hope it is continued under the new government.”
From the perspective of Barry Downes, co-founder and managing director of Sure Valley Ventures, the key thing is a “continued focus on beating inflation”.
Downes described inflation to UKTN as being a “powerful wealth destroyer” that needs to be tackled as the “number one priority”.
Inflation has hit historic highs in the UK, currently sitting at 9%, with the Bank of England predicting an increase to 11% within months.
Downes also noted that more support for university research and spinouts is key for the UK to level up its position. A greater focus on spinouts was named as a part of the UK Digital Strategy, unveiled at London Tech Week in June.
The plan was unveiled by MP Chris Philp, who previously served as the UK’s minister for Tech and the Digital Economy. However, Philp resigned from his post prior to the Tory leadership contest, leaving the plan’s future uncertain and typifying the lack of clarity currently facing the UK tech industry.
While VCs could not be drawn on a preferred candidate, other UK tech industry sources have privately voiced support for Rishi Sunak to UKTN. The former chancellor won plaudits for his support and interest in the UK’s fintech sector.