Britain has become increasingly good at creating technology startups, but it has struggled to keep some of its most promising companies as they grow into large, globally significant businesses.
Recent Financial Times reporting has renewed debate about whether the UK has the research talent, universities and entrepreneurial culture to create successful startups, but lacks the capital, infrastructure and commercial environment needed to scale them domestically.
More than 2,000 university spinouts have been created in Britain since 2010, with a combined value of almost £50bn and around 27,000 jobs, according to figures from the Royal Academy of Engineering cited by the FT.
However, several high-profile companies have ended up under overseas ownership or moved significant operations abroad. Arm, which grew out of the Cambridge technology ecosystem, was acquired by SoftBank and eventually listed in the US, while Oxford spinouts OrganOx and Oxford Ionics were acquired by Japanese and American companies respectively.
A major factor is access to late-stage finance. Britain has an established venture-capital market for early-stage companies, but the funding gap becomes more significant when businesses require tens or hundreds of millions of pounds to expand. The FT identifies funding rounds above roughly £30m as a particular pressure point, with US investors more accustomed to providing very large amounts of growth capital.
British founders can therefore find themselves looking overseas just as their companies reach the stage where substantial investment is required.
American capital also provides access to the world’s largest technology market. For companies whose biggest customers, competitors and potential investors are already in the US, establishing a significant American presence can become commercially logical even when the founders and much of the workforce remain in Britain.
The distinction between a company “leaving” Britain and becoming increasingly international is therefore important. A startup can retain substantial operations, employees and intellectual property in the UK while shifting ownership, headquarters, fundraising or future expansion towards America.
Infrastructure is another consideration, particularly for capital-intensive technologies. The FT has highlighted access to chips, computing capacity and electricity as factors affecting where companies choose to scale. These requirements are increasingly important for artificial intelligence, biotechnology, quantum computing, robotics and other deep-tech businesses.
Britain’s advantages in research and relatively lower laboratory costs can be offset when companies need large amounts of specialised infrastructure or computing power.
The government has responded by focusing on access to growth capital rather than trying to prevent companies from expanding overseas. Ministers have ruled out an “exit tax” on university spinouts that subsequently move abroad, arguing instead that Britain needs to become attractive enough for companies to choose to remain.
Policy discussions have included increasing institutional and pension-fund investment in high-growth businesses and strengthening the role of the British Business Bank.
There are reasons for caution about describing the situation as a straightforward failure. Britain remains a major European technology hub, has strong universities and research institutions, and offers lower costs for some forms of laboratory and research activity than leading US centres.
International expansion can also be a normal part of building a successful technology company rather than evidence that a founder has rejected Britain.
The underlying issue is therefore broader than the number of startups being founded. Britain appears capable of generating significant research, intellectual property and early-stage companies, while capturing less of the value created when some of those businesses become much larger.
The challenge is to understand whether the main constraints are access to capital, domestic customers, infrastructure, regulation, taxation, talent, stock-market conditions or simply the scale of the US technology market.
For British founders, the decision can become particularly significant once a company reaches the scale where its next stage of growth requires substantially more capital and international customers.
Recent FT reporting suggests that this transition, rather than the initial creation of startups, is where some of Britain’s structural disadvantages become most apparent.
