of 1931 was nothing if not ambitious. Commissioned by the Treasury, its objective was “to inquire into banking, finance and credit…and to make recommendations calculated to enable these agencies to promote the development of trade and commerce and the employment of labour”. Today it is best known not for its musings onAmerican industry
Freshen the language and adjust the figures, and the report might have been written today. Britain’s financial-services industry employs 1.1m people, generates 7% of the country’s economic output and contributes a tenth of the Treasury’s tax revenue. But this clout is not harnessed to build the industries of the future. Too often, when it comes to scaling a promising startup into a domestic heavyweight, equity capital dries up along the way.
To see where the problems lie, look at the typical life cycle of a company. Most entrepreneurs begin their businesses with their own money and that of friends and family. Once they need sums in the hundreds of thousands, however, they usually sell a proportion of the firm’s ownership to institutional investors . Further rounds follow when the startup needs to raise more money: “seed” once it’s around a million, “Series” when it’s more, and so on until the letters run out.
“Deep tech” ventures, which try to develop ground-breaking new technologies like artificial intelligence or quantum computing, face particular difficulties in attracting scale-up capital. Such firms are essential to building new industries—research into search engines was once a niche pursuit. But spending on research and development chews through cash, and any revenue is likely to depend on a small number of clients or pilot schemes.