How the UK can stop accidentally exporting its best tech start-ups

The UK government has ruled out exit taxes on companies spun out of universities that leave the country. Rather than discouraging exits, it should make it more attractive for them to stay.

University spinouts occur when inventors seek to commercialise smart ideas fostered in academia. More than 2,000 have been created since 2010, according to the Royal Academy of Engineering; valued just shy of £50bn, they are a bright spot for Britain. They burnish university credentials — and, via royalties and licensing fees, their finances — create jobs; some 27,000 of them, reckons the Royal Academy of Engineering.

Keeping them on shore is tough. Arm Holdings, not strictly a university spinout although it emerged from the cluster around Cambridge university, is the poster child for footloose innovation. Bought first by Japanese tech investor SoftBank, it is now listed in the US where it is valued at a quarter of a trillion dollars. It’s hardly unique. Last year, a pair of Oxford university spawned unicorns went to overseas buyers: OrganOx to Terumo of Japan for $1.5bn, Oxford Ionics to IonQ of the US.

There is little mystery around why companies leave the UK. Take fundraising. It is hard for start-ups to secure funding rounds in excess of, say, £30mn, as they gather momentum. US investors tend to be happier to write the bigger cheques.

But in return they want to add strings. Typically that means taking at least part of the business to the US in hopes of securing a better valuation in following fundraising rounds or public listings — as well as being better placed to tap what is, for many technologies, the world’s largest revenue pool.

Next up, infrastructure. For the tech fraternity, the US is an easier place to secure access to chips, servers and power. Biotech firms favour the US regulatory framework since, if drugs turn out to be successful, the maker will want to be able to sell into the American market.

The UK is fighting back. It is trying to make capital available to start-ups via various state arms, including the British Business Bank. That should also help attract venture capital, which fell to a post-pandemic low of £1.3bn last year, but should rebound to record levels this year, says the RAEng. Other plans, which include harnessing pension pots, should be expedited: innovation doesn’t hang around.

Meanwhile, the UK should press what advantages it has. Renting a lab costs perhaps half what it does in US hotspots of Boston and Silicon Valley. Academic talent is considerable. And then there are less scientific factors: even after selling overseas, most founders stay put in the UK, according to the RAEng. That suggests the UK hasn’t totally lost its ability to charm innovators.

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