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The UK should not be an “incubator economy” that builds up new companies only for them to be sold off to overseas buyers, the new chair of the British Business Bank has said.
Stephen Welton told the Financial Times that the UK’s economic development bank wanted to fund “the big, significant companies of tomorrow” amid concerns over Britain’s ability to retain start-ups with the potential to become multibillion-pound companies.
Welton, who was appointed to the role at the state-owned lender in October, said in an interview that the BBB could support domestic companies by providing capital and by working with banks and other institutions to simplify access to finance for small and medium-sized enterprises.
He has taken over as ministers try to boost a stagnant economy and stem the flow of companies being bought up by overseas groups or seeking to list outside the UK, particularly in the US.
“We’re developing these companies, and then they’re being acquired either . . . by corporates — often US corporates, but not exclusively — or they’re being acquired by US investors, who then redomicile the business,” Welton said.
“We don’t want to be an incubator economy taking all the risk of these very, very tiny companies, and then not able to capitalise on that by following through with the scale-up capital to turn some of those into true global companies,” he added.
Almost 5,000 high-growth UK companies have been sold in the past decade to corporate buyers such as French pharmaceutical group Sanofi and US payments group Visa, according to analysis by data provider Beauhurst and investment manager Charles Stanley.
“The UK is very well-placed to start companies and to spin them out of universities and to give them that first leg on the ladder,” said Welton.
“We’re not nearly as successful when it gets to the next two or three legs of the ladder where the US predominates,” he added, noting that this challenge was not unique to Britain.
Welton said part of the challenge was that investing in a large number of small UK scale-up companies was not always attractive for big pension funds because the investments were individually too small to justify the cost of selecting which companies to back.
In a push to encourage private capital into the sector, chancellor Jeremy Hunt said in the Autumn Statement in November that he would create a “growth fund” within the BBB, allowing pension funds to invest in companies supported by the bank. The BBB may need regulatory approval to operate the fund, which would be backed by a capital base of £7bn.
Welton said the fund would probably be one of many ways of channelling what the government hopes will eventually be up to £50bn of pension money into unlisted companies, but added that it would be important to ensure there would be benefits for pension savers.
Founded in 2014, the BBB supports more than £12bn in debt and equity finance for businesses, including a sex party planner and Bolton Wanderers football club as well as tech and life sciences start-ups. It has come under scrutiny in recent years over some of the 90,000 companies it has backed. The BBB’s investments fell in value by £146mn in the 12 months to March amid a tech sector slump.
“We do need some capital discipline because not every idea is commercially viable,” said Welton.
The BBB could also play a role in simplifying the process of raising finance, said Welton, previously chief executive of the Business Growth Fund, a company backed by some of the UK’s biggest banks and which invests in small and medium-sized businesses.
It was “way too complicated” for small companies to raise funds, he said, adding that businesses had to “spend an awful lot of time” working out what types of financing were suitable, with companies having to provide the same information to different organisations many times over.
“Very few people in the private equity and venture capital industry will think about this because it’s not their problem. The bank can think about that because it’s part of our brief.”
