A technological nation is trailing in second place in the race to remain the UK’s government-backed “startup champion” after the latter announced the £12m contract at auction, according to TechCrunch’s sources. First in line at this point – in a decision due in December – is banking giant Barclays. Tech Nation’s existing government funding continues until March 2023.
But the prospect of a profitable global bank taking on the contract has been described as “crazy” and “insane” by some key UK industry players.
Over the weekend, The Sunday Times reported that government officials were concerned that Tech Nation was “violating state aid rules because it has failed to become self-sufficient,” prompting officials to put the contract up for bid earlier this year.
However, although the Times reported that Tech Nation had lost the contract, TechCrunch understands that a final decision has not yet been made. It is also understood that Tech Nation intends to continue “as is”, even without government subsidy, supported by fundraising from sponsors, subscriptions and partners.
Barclays applied for the contract through its network of Eagle Labs Incubatorssome of which have physical locations, but most do not.
This, albeit patchy, national presence is believed to be helping to woo the government in its so-called “flattening” program as it seeks to boost more start-ups outside of London.
If successful, Barclays would also be able to administer the Home Office’s digital visa scheme, although it is unlikely to have a monopoly on this.
Again, it was misreported that Tech Nation would lose this opportunity. The £12m funding and the operation of the Visa scheme are actually separate matters and the Government’s final decision will not affect Tech Nation’s role as set by the Home Office to approve the Global Talent Visa.
Tech Nation has long been embedded in the UK tech startup scene. Tech City UK, its predecessor, was launched in 2011 by former Prime Minister David Cameron and concentrated largely on the London ecosystem until 2018, when it merged with Tech North (based in Manchester). Since then, he has launched countless programs connecting technology start-ups and scale-ups with each other and with investors in the UK and abroad.
The not-for-profit is chaired by Lord (Joe) Johnson (brother of Boris Johnson) and chaired by former Sage boss Stephen Kelly.
Gerard Grech, chief executive of Tech Nation, said the body’s work represented a “£15 return on every £1 invested by the government”.
In a statement, he told me: “We have supported over 4,000 technology companies from across the UK. More than 30% of the UK’s 122 tech unicorns (eg Monzo, DarkTrace) have completed a Tech Nation program (49 in total to date). About 44% of UK decors have completed an accelerator growth program without TN thinning (failure rate under 5% so far).”
“Hundreds of tech firms have signed up to the Tech Zero Pledge, co-founded with companies like Mozo and Olio, which binds tech companies to Net Zero. Our Libra Growth Program shines a light on underrepresented founders and leaders, as well as the latest diversity and inclusion toolkit we recently launched for tech founders to help them grow a more diverse workforce,” he said.
“Today, Tech Nation’s work represents a return of £15 for every £1 invested by the UK Government. This is one of the best ROIs for the taxpayer in the most strategic growth area of the economy,” he added.
Tech Nation’s recently published annual report says it could remain a going concern if government funding is withdrawn.
The industry reacted, broadly speaking, with dismay that a huge global bank would be entrusted with the sole responsibility of supporting the UK’s tech start-up ecosystem.
One source said City AM that the move is “like letting an arsonist teach children about fire safety”, given that the bank will have to support programs for startups in the fintech space, which puts it in a conflict of interest.
Another said the government had “effectively given funds to Barclays to acquire new customers” and was “a potential competitor or customer to the start-ups it should support”.
Speaking to me on condition of anonymity, one investor called the government’s decision to question Tech Nation’s funding “insane.”
“This is crazy. We must scream this into oblivion. We cannot provide the technology ecosystem support of an incumbent bank! Everyone should know how crazy this is,” he said.
Another VC told me that the decision to put Barclays first in the contact race was “like President Bush declaring ‘Mission Accomplished’ after the Gulf War, when the war was far from over.” I don’t know what the government was thinking. I suspect this new government is more interested in banking and financial services than technology.
Brent Hoberman, founder of LastMinute.com and now head of FirstMinute Capital commented on LinkedIn: “[I] I’ve been a fan of Tech Nation and the hard work and impact they’ve had and the creativity to expand their role. It’s hard work, and the scrutiny that rightfully comes with government money makes it particularly difficult to experiment. Barclays will need to find leverage to have greater impact and scale.”
Ian Merricks, managing partner at White Horse Capital and chairman of The Accelerator Network, and rival bidder for the Tech Nation contract said it was “hard to be more angry about this use of public funding to support business growth. I guess the ‘winners’ have more of a lobbying function than us as a private sector consortium.”
Tania Suarez, Founder and CEO | IoT Tribe, commented: “Certainly this provides an unfair advantage and can be used to influence founders’ choice of banker at several stages of growth. I wouldn’t be happy if I were any other UK bank or other financial institution that has supported the founders over the years. Let’s not forget that Barclays had a net operating income of £22bn in 2021 and a profit of £7bn. If they really wanted to do this, they would have to set aside a small amount of that to cover the £5-6m a year they will be getting… I don’t believe they need a grant to do it.”
Nicola Bates, Head of Global Accelerators and Innovation Programs at Boeing, said: “I don’t see how this makes sense for Barclays or the ecosystem. At £12m, it would probably cost Barclays more to bid for him. But surely this is a job they would (and should) be doing anyway – without the need for government money?”
Grech said the decision was in the hands of DCMS.
A DCMS spokesman said: “No final decisions have been made. The successful grant recipient will be announced in due course.’