This question has never been more pressing given that the UK faces the twin challenges of cutting the deficit and increasing the number of non-public-sector-non-financial-services jobs and business in the UK. Most economists accept that entrepreneurial or early stage businesses are the main creators of jobs and new businesses so should public sector money be used to boost this activity?
Interestingly this is not really a free market versus centrally planned economy type debate as governments of both persuasions put public money into these businesses with the USA being the biggest “public supporter” in the world.
How about direct investment by a body of civil servants?
The public sector has a pretty dismal record on investment decision making whereas many in the private sector have excellent records. So I think the underlying question is what way should public policy and resources lubricate the entrepreneurial process of wealth creation?
How about subsidising the cost of advice to these businesses?
I have to declare that we have received these subsidies and we used them to set up a thriving business angel activity [now four separate private sector companies] in the West Midlands where none existed before. We had a very specific strategic objective but, in most instances the issue is: how do you spot a good advisor from a poor one?
The public sector uses targets of “advice given” and “results achieved” often in the form of jobs created or saved. All too often the best and most diligent advisors get caught up in a tangle of detail prescriptive reports which usually mean very little and focus too much on the numbers and the forms rather than real long term impact. Some things can’t be measured on forms.
Very difficult and I have seen people being helped to get into business who are not really capable of building and running a business and who should have been told so!
My personal recommendation is “private” public sector money or matched funding.
Here public money is invested alongside private sector business angel money, on the same terms and conditions, benefitting form the proven skills of successful entrepreneurs. Even the superstar entrepreneurs don’t get it right all the time but they do think very carefully before risking their own time and money! When deals do work the public purse gets a nice windfall.
The UK has a variant on this matched funding idea: EIS tax relief which gives investors a generous tax “bonus” when they make an investment. Unfortunately the government does not gain any “windfall” when the deals work and the tax relief places unhelpful restrictions on structuring deals. I would certainly like to see a more straight forward “matching fund” in as an option instead of EIS tax relief. Maybe Vince Cable could cajole the banks to deliver on their “social obligations” by putting £50m a year each (small beer to them) each into such a fund – now that might make a real impact.
There is the usual consultation process underway but initial feedback suggests a “less of the same” approach rather than any really radical moves but we at ABA will continue to lobby for change.
Neil Mackay
Managing Director
Advantage Business Angels
www.advantagebusinessangels.com