Chancellor must see value beyond high-tech start-ups

As he puts the finishing touches to next week’s pre-Budget report, Gordon Brown needs to remember that start-up companies are not the only engines of growth and productivity in the economy.

As he put the finishing touches to next week’s pre-Budget report, Gordon Brown needs to remember that start-up companies are not the only engines of growth and productivity in the economy.

There is enormous potential to realise hidden value, either by spinning a small company out of a big one; by buying an existing small company and growing it; or simply by a bunch of clever engineers with vision transforming the company they are already working for.

But the watchword is agility. Big companies usually have a critical mass through their market share and purchasing power that creates economies of scale. They also have deep pockets. But as the boss of a management buyout told us this week, if you have deep pockets, you also need very long arms to get into them.

Engineers in a big company who come up with a smart idea are going to need one-off investment funds — even just a modest million — to grow the idea into a small company.

But their employer, however many billions are at its disposal, will often view their idea as just one competing project among many that are all seeking funding. Its investment appraisal machine will start working out where to spend its cash and will look at everything it could spend the money on. By the time the process is finished, the usual story is that some other company has had the same idea and beaten them to it.

Small companies, focused on one kind of technology, with financial backers that believe in and understand the technical detail and commercial potential of their vision, can act faster. That’s true whether they are start-ups, buy-outs, or simply existing companies in a stage of transformation.

The more the chancellor can do to help innovative small firms, the better for UK productivity. It isn’t about propping up lame-duck firms. It’s about creating a better environment for ambition and risk-taking.

The opportunities are out there. So let’s take them.