In brief
- On 5 November the House of Lords Science and Technology Committee published its report "Bleeding to death: the science and technology growth emergency" in which it identified a "national crisis of growth".
- The UK excels at discovery and early-stage spin-outs but chronically fails to scale science and technology businesses.
- For those businesses to successfully scale up within the UK, access to capital and talent must improve. By aligning capital and procurement levers and taking a talent-first approach, the UK can compete head-to-head with other jurisdictions for technology ownership, jobs and listings.
Our venture capital lawyers advising founders, funds and universities on spin-outs and growth financings, see their fair share of brilliant UK science and technology start-ups fail to become great UK companies. The House of Lords Science and Technology Committee's report, Bleeding to death: the science and technology growth emergency, diagnoses a national crisis. In this article we address what we can do to stem the bleeding.
The problem
The UK excels at discovery and early-stage spin-outs but chronically fails to scale. Late-stage domestic capital is scarce, pushing companies to raise overseas and relocate. UK pension funds contribute a small proportion of VC funding when compared to their international counterparts, with allocations to UK equities and private markets falling dramatically. UK capital markets have become a weak venue for growth IPOs, with smaller listing volumes compared to the US. Public investment bodies are under-scaled, fragmented and hindered by red tape. Government procurement remains risk-averse, starving innovators of anchor revenue. Meanwhile, university research, the bedrock for spin-outs, faces acute financial pressure.
Key structural frictions
- Pension capital: Mansion House reforms and the Pension Schemes Bill both aim to mobilise institutional capital, with voluntary accords and powers to mandate. But the execution risk is clear: defined-contribution schemes default to infrastructure, not venture.
- Public finance architecture: International peers operate at much greater scale with clearer mandates.
- Procurement: Government contracts de-risk and anchor companies, yet processes favour incumbents rather than innovative UK-based SMEs.
- Sovereignty: Repeated strategic sales raise sovereignty concerns, but the National Security and Investment Act is used only at the margins because of the need to balance deterrence of investment against preserving domestic control. For more information, visit our National Security and Investment Act hub.
- Talent, universities and commercialisation pathways: High upfront visa costs and slow processing deter top scientists and analysts. Universities face a funding crisis, threatening the research base that feeds spinouts. Spinout equity terms are improving post the Tracey Review and the publication of the TenU guides but need continued standardisation and patent incentives. Commercially, we know cleaner, lighter university equity and intellectual property terms can accelerate investor readiness and reduce friction at later stage funding rounds.
What we should do now
Going forward, we would like to see a focus on the below five recommendations from the Committee's report:
- Make pension capital work for deep tech scale-ups: Set transparent targets for defined-contribution allocations to UK private markets and specific science and technology scaleup vehicles; publish scheme level UK allocation metrics and consider tax relief clawbacks where targets are missed.
- Protect strategic capability without chilling investment: Differentiate the types of foreign direct investment and control proportionately. Deploy the National Wealth Fund and British Business Bank as cornerstone coinvestors to retain centres of gravity and tie late stage public equity to UK commitments.
- Fix visa frictions and shore up the research base: Cut upfront visa costs; scale the Global Talent Fund; and review and promote the Scaleup Worker visa to fit actual company needs. Set a long term settlement for university finances; drop counterproductive international student levies; and maintain R&D tax credits while tightening antifraud controls.
- Make Innovate UK a diligence engine that speeds up access to capital: Rebuild grant processes for speed and transparency; publish outcomes and referrals; make "Innovatebacked" a recognised diligence signal into investment funds.
- Capital markets that reward control and liquidity: Leverage new UK listing flexibility in order to maintain founder control; use PISCES-style secondary liquidity to reduce early sales pressure; consider ISA and stamp duty levers to channel more domestic savings into UK science and technology equities.
Keeping the UK competitive
The UK still converts world-class research into exciting companies; our failure is keeping and scaling them here. With aligned capital and procurement levers, and a talent-first approach, we can compete head-to-head for deep tech ownership, jobs and listings - and finally capture the full economic return on our science. The diagnosis is clear. The treatment prescribed. Now we need to administer it.