Time for a UK Sovereign Fund in new technologies

Investments going up

People have been talking about setting up a UK Sovereign Fund for years. However, there is still relatively little clamour to support this initiative and make it real.

Of course this is an old idea. Norway set up its Sovereign Wealth Fund back in 1969, with the aim of managing Norway’s oil resources over the long-term. Over the last ten years, the fund has delivered a return of 8.3%, or 36.5% in real terms after annual management charges and inflation. Source Forbes.

Much more recently in 2006, Australia set up a Future Fund which is performing well and is investing in a number of different areas including disability care, medical research and nation building.

The UK could very easily start a Sovereign Wealth Fund and it would be applauded by the majority of people in the country as long as its core principles were right and it was totally apolitical. It’s time we did. We are a small but highly inventive people. We shall become an increasingly small part of the future world and yet there is no reason for our creativity, originality and inspiration not to be captured, supported and indeed amplified through such a fund

We should set up our own “Future technology Fund”. It should invest in technologies that benefit large numbers of the future population. This should include the following:

  • Health
  • Energy
  • Agriculture, landscape and environment
  • Housing

Some of the amazing break throughs that are happening in health technology should be supported and ultimately be part of this Fund. There is too much incredible work that originates here in the UK but that is allowed to be commercialised elsewhere in the world. We need to ensure that the Fund can provide a commercially owned structure which ensures that value goes into future generations living in the UK.

The Fund should be controlled on the basis that no funds can be withdrawn for 10 years minimum and then only a maximum of 2.5% of the value of the fund in any one government as long as the total fund is still always higher than previously. It should be independently managed and separately monitored.

We should incentivise entrepreneurs to bequeath their companies and the assets of these companies to the state. We should do this by providing them with entrepreneurial tax relief on their output as long as at least 25% of the assets ultimately end up in the Fund. This would continue to build on the “innovation and entrepreneur friendly” tax structure that now exists in the UK and which is much envied across Europe.

We desperately need to rethink how we fund our future. This would be an important first step in that direction.

The Uber of something…

In the last week, three different people have pitched me the line, “we are going to be the Uber of x,y or z..”

In each case they have waited expectantly for me to respond enthusiastically about their elevator pitch.

I don’t want to be a killjoy, but please spare me this “boil in a bag” entrepreneurship. As someone who has made their fair share of elevator pitches, I do really understand the need for clarity and brevity. I recognise how powerful an analogy from another market sector can be, particularly when it is a multi-billion dollar success story. But if everyone is using the same unicorn references to bolster their own story then it becomes meaningless.

The problem is that the media is feeding everyone the hype that one can become a billionaire overnight by reading the right textbooks and going to the right “tech meet ups” and saying the right things, but the reality is that this happens to a tiny percentage of people. For the rest there is no shortcut. As an entrepreneur or any business person today, you have to work harder than ever to create an individual story for your brand. The story needs to be authentic and passionate, a beacon of light for customers who have the problem or the need that you are solving.

I know personally how difficult it is to find, synthesize and articulate that simple powerful story. I have done it for some businesses but not every time. Equally i know how valuable it is when you get it right. And that is never the result of short-handing or plagiarising other brands’s stories.

So let’s avoid being the “AirBNB of a,b or c”!

flock, crowd

Is pain good for entrepreneurs?

Why is it that every entrepreneur buys into the concept that a suffering a lot is good for their start-up?

Certainly every VC and early stage investor i have ever met, sings the praises of “entrepreneurs suffering to win”. And clearly if you’re the investor paying the bills then it’s no surprise that you are arguing to pay the management as little as possible until they are making you a return. But I am unconvinced that pushing this concept too hard is a good idea. I am unconvinced, because for every story where the founder struggled from nothing to create a success, there is a parallel story of a founder with a good idea, good salary and a well funded business.

Pain does not guarantee success.

Let me declare my experience. I have successfully raised investment from Corporates (syzygy), public markets (syzygy), private equity (eSubstance / Ink and Edengene) and Angel investors (Law in Order). I have also failed to raise investment from Angels and early stage institutional investors.

So let’s examine the argument.

In favour of pain

There are a few interesting reasons to support the pain theory:

  1. If you are suffering, then it encourages you to focus on understanding and applying the key levers of your business that can make it a success.
  2. If you are not making any money personally then it drives you to work bloody hard to find ways to change that. You are desperate to get the business driving sales and profit so that you can take out some more money
  3. If you’re struggling then it makes you change things quickly. It makes you give up routes that aren’t working. It drives you to adapt. You can’t prevaricate.
  4. Paying entrepreneurs very little at the start allows the business to run for longer on less cash

 

Against pain

The key arguments against the pain theory are as follows:

  1. It can cause serious ill-health. I should know I ended up in hospital for 6 weeks once
  2. It destroys marriages and families. Ask experienced entrepreneurs and many will comment on this possibility
  3. There isn’t any more guarantee of success. Sweat plays a part in success but in today’s competitive world it isn’t the golden key
  4. Pain can give entrepreneurs tunnel vision and actually prevent them from seeing the big picture. And they need the big picture to make the right decisions

My humble view is that success is much more strongly correlated with the mitigation of risk. Whenever, I speak to successful serial entrepreneurs, I hear how strongly focused they are on reducing risk and knocking down the problem areas, wherever they may be. They are resolutely focused on understanding how to improve the relative profitability of their product or service, how to scale it quickly and how to win and retain loyal customers.  Successful entrepreneurs build capabilities, partnerships and resources early on. The make’em suffer theory is a red herring when you look at these drivers of success.

So is there a middle ground?

Yes I believe the right answer is a mix of these components:

  • The entrepreneur needs enough money and collegiate support not to be driven over the edge. But this shouldn’t be too much to make them comfortable. There isn’t a single number for every start-up, but the immediate answer shouldn’t be “£0″, which too many early stage investors seem to think
  • If an entrepreneur chooses to pay themselves nothing to make it happen, then investors shouldn’t necessarily assume that the entrepreneur needs to invest lots of capital as well.
  • Every entrepreneur needs minimal distractions from outside influences, like the arrival of a child or a divorce.
  • The key focus should be on getting sales out of the start-up and not being diverted on making money out of consulting or side bets.
  • Businesses with breadth and depth in their management teams tend to do better than others, so start-ups should look to find cost effective ways to bring good people on board or just giving advice.

I would be fascinated to see more research into this topic, but for now, don’t just sign up to the theory that pain is good.

Understand what that means and how that relates very personally to you.