Rachel Reeves must boost funding for student start-ups in her budget

In 1903, The New York Times predicted that it would take somewhere between “one million to ten million years” for engineers to develop aeroplanes that could carry passengers.
Only nine weeks after that article came out, the entrepreneurial Wright brothers flew the world’s first powered aircraft, with a human pilot onboard.
That’s the transformative power of entrepreneurship. So it’s no surprise that just 6 per cent of fast-growing entrepreneurial businesses create more than 60 per cent of all new jobs in our country.
And that’s why it’s so important that Rachel Reeves, the chancellor, has a substantial plan for British start-ups and scale-ups in her first budget, due on October 30.
The tight spending environment means that finalising the budget will be fraught, because public sector budget decisions are zero sum issues. A pound extra for the NHS, say, is a pound less for another department’s budget.
Entrepreneurship is different. The whole objective is to create something new: a product, a service, an innovation that stands out from anything else. It’s a non-zero sum scenario — which is why the first budget of the new Labour government needs to include measures to boost start-ups.
As chancellor in the last Labour administration, Gordon Brown supported small businesses by cutting corporation tax for small firms to 0% and reducing capital gains tax to 10 per cent to encourage long-term investment (which is what start-ups are all about). Brown also wisely used the EIS tax incentive to attract funding into start-ups (which David Cameron later built on).
Our advice to Reeves is to focus on an area where she could get a lot of “bang” for not much “buck”: by focusing on British universities, and helping more bright graduates launch entrepreneurial ventures.
Last year, one in ten British students started companies, which is fantastic — but well behind America, where students launch businesses at almost twice the rate.
The upcoming budget could help close that gap — for example by providing funds for student start-ups and entrepreneurship education (in partnership with the British Business Bank and private investors), or by encouraging more university spin-outs.
The data shows that student start-ups have more diverse founding teams than UK start-ups in general: 40 per cent have at least one female founder, while 43 per cent have at least one founder from a black, Asian or minority ethnic background. So boosting student entrepreneurship isn’t just good for the economy; it’s good for society too.
As the two of us know, building a business is a painful slog, and you need all the help you can get. Fortunately, there’s no shortage of organisations in Britain — from incubators and dorm-room funds (like the Creator Fund) to mentoring networks — that do a great job of providing hands-on support to fledgling ventures. At a practical level, the budget could boost funding for these support groups — with the investment explicitly directed towards expanding support for student start-ups.
And as Oxford University’s vice-chancellor Irene Tracey has rightly said, Reeves should also commit £100 million to university spin-out funds, providing the essential investment capital to go from the campus to the masses. Universities need to play their part too, by cutting their ownership stakes and speeding up the approval process for academic inventions to be spun out as companies.
In the context of public sector spending, this funding would be a drop in the ocean, but the return on investment could be monumental.
We all want Britain to get back to strong economic growth, but this can’t happen without cultivating the next generation of great British entrepreneurs. That means backing student start-ups with the funding and resources they need to take on the world. If our new chancellor can do that, the possibilities are endless.
Brent Hoberman is co-founder and executive chair of Founders Forum Group, Firstminute Capital and Founders Factory; Rohan Silva founded Second Home and Libreria Bookshop