Land of hope and glory (and tax)

In the middle of 2006 I met some of the founders of Zopa, a UK-based startup that is now ready to launch in the US. If it works out, then the firm will join a very select band indeed: tech-focused UK startups that have achieved international success.

I asked Zopa’s James Alexander about the pros and cons of starting in the UK. He put it this way: “If we hadn’t been Brits with specialist knowledge of the UK market, we’d probably have launched in the US first.”

This discouraging stance is endorsed by a study released last autumn by Cambridge University, suggesting that public-sector policies in the US – where a proportion of Federal budgets must be spent with small suppliers – put US startups at an advantage globally.

Late last year, I asked Martin McNair of UK investment firm Advent Venture Partners if he thought the UK government offers enough help. He noted that there are schemes to assist entrepreneurs but “the administration that goes with [them] is a real pain”. He suggested an alternative: “Tax breaks are more important to encourage entrepreneurs to leave the comfort zone of employment and do something risky.”

This is a call I’ve heard a lot. “The UK has absurd taxation that is crippling all businesses,” investor and entrepreneur Peter Cochrane told me recently. “There seems to be a fundamental aim to stop people getting rich.”

As you’ll have noticed from last month’s Budget, such tax breaks don’t seem to be on the cards; the chancellor actually increased corporation tax for small businesses, when doing the reverse might make a big difference. Cochrane noted that “the UK starts twice as many companies, per capita, as the US, but the failure rate is higher”. He heaped most of the blame on the government: “I’ve started businesses in India, Israel and in the US, as well as in the UK. It’s easier everywhere else.”

He also stated that “the money is better” in the US, meaning that capital providers tend to be more committed. “If things start to go bad, they’ll get involved to help. In Europe, they’ll try to recover the cash and the business then fails.”

I’m increasingly convinced that the UK government could do a lot more to assist early-stage ventures, either through taxation or through better access to capital.

However, not all voices are singing this tune. Chris Shipley, co-founder of US startup the GuideWire Group – which brings entrepreneurs and venture firms together – provided surprising contrast from across the Pond. “If you are really driven to create a company, you’re going to create that company,” she said. “If you aren’t given the investment capital to do that, you’re going to find some other way, which usually means quickly building a product, taking it to market and getting customers to pay for it. And that’s actually a good model for building companies.”