A statement of mixed intent
Our take on what the Autumn Statement really means for startups
If you’re a startup building in a regulated market, what do you care about? Shipping product. Selling to customers. Proving your business model and fundraising to scale it.
Like it or not, the policy landscape cuts through all of these. Fintech startups, medical devices and food companies need to get authorised. Merchants or consumers want to know they can trust you. Investors (usually) expect you to at least have a regulatory plan. And government funding is on offer to help make high-risk ideas viable.
But now the dust has settled and the cheerleading has stopped, what did this week’s Autumn Statement actually mean for you?
The Ugly
This time last year the Chancellor pickpocketed startups, slashing R&D tax credits and forcing in-year budget cuts.
In Spring, after we and others highlighted the impact (NB: paywall) this would have, the Treasury revised its approach and at least agreed to shrink the cut for R&D-intensive companies.
Now, the government has merged the two schemes for small and large companies into one, cutting rates again for loss-making startups in the process. Whereas today, SME tax credits aren’t taxed, credits under the new scheme will be notionally taxed at 19% for loss-making companies. In practice, they will now actually receive a 16.2% credit on their qualifying R&D spend, not 20% (the mooted headline rate) or even 18% (the rate today).
And, having merged the old SME & large company schemes in the name of simplicity, we understand government will now legislate to create a new standalone scheme for R&D-intensive SMEs.
The mildly good news is that the threshold to access the new intensive scheme has been lowered. Startups with at least 30% spending on R&D can now access a 27% credit, not least thanks to solid campaigning by the Startup Coalition. But ultimately the changes still amount to roughly £2bn being taken out of the ecosystem over the next 5 years.
The Good
There was at least positive momentum on the regulatory landscape for startups. We’ve long argued that for all the attention on capital and talent — important though it is, as R&D tax credit cuts demonstrate — backlogs and bottlenecks at UK regulators have been neglected, slowing companies’ route to market.
Fortunately, there is reason to be optimistic. New regulatory pathways for AI, engineering biology, space and individualised therapeutics are forthcoming. Stronger political steers for regulators should help prioritise growth and pro-innovation regulatory culture. New mechanisms for regulatory agility — fast-track authorisations for products already approved in other countries, and a ratchet for ever-quicker approval timelines — could reduce blockers if taken forward. Pay flexibility to hire much needed technical talent could also be coming.
Labour, for its part, is also on board: it recently announced it would create a new Regulatory Innovation Office, and its ongoing Fintech and SME reviews are likely to recommend ways to upgrade regulatory agility and startup engagement too.
All of this momentum, if implemented, is extremely welcome. These steps should help accelerate innovation where regulators lack either the instruction or incentive to enable it today. But little attention is being paid to resource: for all the money the government (rightly) spends on science and technology, very little goes to supporting regulators to accelerate their efforts to understand and - safely - authorise new technologies.
We’re working to change that, helping founders get to market as quickly as possible.
The Promising
On the eve of the statement, the big news was about the university spinouts review, which wrapped up with some major progress: academic founders should retain more equity in their companies, terms will be standardised, and there will be some funding for university tech transfer offices, loosening their incentive to over-acquire equity. Major credit goes to Nathan Benaich here, following all his campaigning via Spinout.fyi. (Do check out our interview with Nathan here covering the issue, as well as his broader thoughts on AI investing, building and policy.)
Elsewhere, the government committed £500m for AI compute and promised its long-awaited response to the AI white paper by the end of the year, committed £4.5bn to advanced manufacturing including life sciences, and fleshed out its commitment to growing the quantum sector significantly by 2030. It also agreed to create a new concierge service for international investors, following Lord Harrington’s wide-ranging and thoughtful review of FDI.
The Verdict
Green shoots on regulatory reform overshadowed by the dark clouds of R&D funding cuts. And without hasty delivery on regulatory innovation, many UK companies will still find it slower to get to market than it should be.
We’re convening discussions with founders, investors & policymakers to fix the regulators. Email us to get involved, and share this with anyone else who should:
Portfolio Updates
Infact set out the case for real-time credit data, highlighting how an inaccurate, incomplete, and out of date status quo fails both lenders and consumers
Stitch launched their new site, highlighting the impact of better patient engagement in clinical trials
Flok, which is combining AI & human physios to autonomously assess and treat back pain (the only technology with MHRA approval to do so), also launched their new launched their new site
Hoxton Farms gave Sifted a tour of their new lab facility to cultivate delicious, sustainable, cruelty-free fat, built in a converted office space in central London
Sylvera was named a 2023 Tech Champion by the Financial Times, who wrote about their mission to bring integrity to carbon markets
KareHero celebrated Carer’s Rights Day, in their mission to help both employers and employees to understand, find, and fund care for their elderly loved ones
Checkstep’s latest Trust & Safety meetup brought technologists, policymakers, regulators and operators together on online safety
Stotles partnered with AutogenAI, to improve how companies do business with government
Form Updates
Last week, Mayowa spoke about "Finding your Niche in VC" on a panel at the inaugural VC Analysts & Associates event, hosted by our LPs Isomer Capital and The British Business Bank.
Next week, Patrick will be at Slush discussing AI investing & policy, drinking too much coffee (say hi 👋) and bracing the cold.
And finally, Leo picked up a runners-up award for Form in the Europas Hottest VC of the Year category, from host Mike Butcher. Congrats to winners IQ! 🚃
As always, if you’re building in the future of regulated markets, get in touch.
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