Britain's Hi-Tech Industry: A Mixed Picture of Strength and Weakness

Strategic Insights -

Britain's push towards a hi-tech pre-eminence has gained momentum in recent years, with the government unveiling tax breaks and encouraging entrepreneurs through venture capital funding. However, the reality behind this rhetoric is complex. The merger between Celltech and Chiroscience, two leaders in the biotech industry, has created a £1bn company, but also highlights the difficulties faced by small UK hi-tech companies seeking to achieve critical mass. Despite government efforts, Britain still lags behind the US in terms of venture capital backing for hi-tech start-ups, with American pension funds being the main investors in the UK venture capital industry.

Key Takeaways:

  • The merger between Celltech and Chiroscience created a £1bn company, the largest biopharmaceutical company in Europe, but also highlights the difficulties faced by small UK hi-tech companies seeking to achieve critical mass.
  • Government and industry speak with one voice on the importance of venture capital funding for hi-tech companies, with new companies funded by British venture capital investing heavily, growing rapidly, exporting more, and employing more people than their established peers.
  • Despite the rhetoric, Britain's hi-tech industry still faces significant challenges, including the need for more risk-taking capital, management teams, and technologists.
  • The British pension funds' conservatism in committing to venture capital is a major obstacle, with less than 1% of their funds being committed to venture capital in 1998.
  • The US, on the other hand, has a more developed venture capital market, with pension funds committing a multiple of the figure in the UK.
  • A change to UK pension fund rules, similar to the one enacted in the US in the 1980s, could boost the British entrepreneur.
  • The Japanese trade and industry department, MITI, has noted that Britain was responsible for 40% of the world's commercially important innovations, but has not translated this creativity into profits.

Statistics:

  • In 1997, British funds invested £4.9bn in 1,200 UK companies, half of European venture capital investment.
  • In 1998, venture capital investment in the UK amounted to £336m, while in the US it was £6.3bn.
  • The top British businesses spent an average of 2.5% of sales on R&D, compared to the global average of 4.6%.
  • Intel has invested $2.5bn in corporate venturing in start-ups.
  • British pension funds commit less than 1% of their funds to venture capital.

Sources:

  • Friends, Ivory and Sime fund manager David Thorp
  • John Jackson, chairman of Chiroscience
  • Tony Blair, Prime Minister of the UK
  • Gordon Brown, Chancellor of the Exchequer
  • Clive Sherling, British Venture Capital Association chairman
  • Michael Porter, Harvard Business School professor
  • DTI-funded survey of the world's top 300 firms
  • MITI, Japanese trade and industry department