How to build a more entrepreneurial economy

This interview was given to CityAM, the original text is here.

Every week, Charlie Conchie sits down with the biggest names in financial services, tech and fintech. This week, its Balderton Capital partner and Start-Up Century author James Wise.

When Monzo founder Tom Blomfield packed his bags for San Francisco last year and fired a few parting shots at London, it was written up as a sign of the times for Britain’s once great tech sector.

Here was one of the faces of the UK’s ‘cool Britannia’ fintech moment forced out by the lacklustre ambition of his compatriots. He even doubled down earlier this year, claiming the US mindset was “antithetical” to Britain and the most ambitious Brits went to work for a consultancy or a hedge fund rather than starting their own company.

One of his friends, however, took issue with that. James Wise – who also happens to be one of Britain’s pre-eminent venture capitalists and author of The Start-up Century – had a few choice words for Blomfield after the latest outburst.

“I think he’s out of date,” Wise, a partner at London-based Balderton Capital, tells City A.M.  “He did this interview about how everyone goes to McKinsey or hedge funds, and I think it’s rubbish.

“And I told him,” he laughs.

For Wise, Blomfield’s comments cut to the heart of both the UK’s economic pitfalls and its opportunity in the coming years. Britain, he says, has always been a nation of entrepreneurs, we just haven’t quite realised it. We’ve shot down our self-starters and lampooned our Delboys even as we rely on them.

And rather than unrealistically comparing ourselves to the “bubble of extreme ambition” on America’s West coast or trying to mould the London Stock Exchange into the Nasdaq of Europe, Wise says we need to realise our strengths and double down on them.

“In the same way, we’re not going to replicate German manufacturing, and we’re not going to replicate Taiwan’s expertise in manufacturing next-generation chips,” he adds. “But look at the strengths we do have.”

“We’ve denigrated our entrepreneurs”

Wise is politically engaged but self-admittedly “single minded” in what he wants: policies that will turn the UK into a country that nurtures and promotes entrepreneurship. Buried at the back of his book is even a manifesto that lays out some proposals of how to do it, including the option lending £40,000 to 18 year olds to found companies as an alternative to student loans

He says it’s a worldview in part shaped by his upbringing in Manchester, where he was born to a mechanic father and surrounded by people building their own companies from scratch – just not the kind that people might associate with ‘start-up’ or ‘founder’ culture. 

“Everyone I knew was self-employed in some way,” he says. “Some people were doing really well as contractors, building houses. Some people just day-to-day, blue collar labour. But they were all self-employed and they were all building businesses.”

That the UK thinks of entrepreneurship as founding billion-dollar tech companies rather than the small micro-companies “drives me mad”, he adds. 

“I think we’ve denigrated the self-employed and entrepreneurs as a result. If you think about the working class entrepreneur of the late 20th century, it was Delboy. It was kind of a mocking thing, right?”

“London was a ‘backwater’”

Part of the solution to the negativity might be found in counterintuitively looking backwards, he suggests. 

When Wise was mulling a career in venture capital in the early 2010s, London was regarded as a “backwater”. A ‘young venture capitalists’ pizza night he organised in 2012 attracted just three guests. But over the past decade, the tech sector around it has exploded into the worlds’ third largest and £132bn of venture capital investment has been pumped into homegrown companies, according to figures from Pitchbook, minting a total of 43 ‘unicorns’ – companies worth more than $1bn.

Balderton itself now has $5bn in assets under management and has backed the likes of Revolut, Darktrace and Wayve, which just raised over $1bn in Europe’s largest ever AI funding round.

Venture capital investment in the UK (£bn)

While the industry as a whole has wobbled since 2022 on the back of higher rates and an abrupt end to the era of cheap cash, he says we should now be looking to past successes – not California – for inspiration.

“I find it really frustrating when people say we want the next Google,” he adds.

“[Cambridge-based chipmaker] Arm is bigger than Intel, Revolut is nearly the biggest neo bank in the world.

“You want the next Google? Well, actually you’ve got a bunch of them. Why don’t we support those companies, rather than be like, ‘where is it?’”

The comments point to the oft repeated slogans of the Chancellor Jeremy Hunt but go beyond just a criticism of Conservative policy of the past 14 years. Supporting entrepreneurship is not something Wise sees from either side of the table in the current climate.

Entrepreneurial policy was in short supply from both Labour and Conservative manifestos, save for a tax break for the self-employed in the Tory platform. The prospect of a capital gains hike from Labour has also sent shivers up the spine of those pushing for a more start-up economy.

Balderton has backed British self-driving startup Wayve
Balderton has backed British self-driving startup Wayve

What has politically been framed as a means of levying tax on the wealthy has been described as the potential “death of entrepreneurship” by others. Wise is firmly in the latter camp.

“If I say, ‘someone’s going to make £1m from the sale of shares. How much tax should they pay?” You’re gonna say, ‘more, they’re wealthy people’,” he adds.

“But if I say to you, ‘someone’s sacrificed 10 years of effort, they’ve paid themselves next to nothing to build their business. They’ve employed 1000s of people in the process, built new technology, built a product millions of people want. Should they pay 20 per cent tax or 45 per cent tax?’ People might be more lenient towards the idea of taxing capital.

“It’d be a shame if policies like capital gains tax were changed because of a view that they benefited stockbrokers rather than entrepreneurs,” he adds.

Wise and his industry peers are also about to take a huge personal dent from one of the revenue raisers in the Labour party manifesto. If, as polls predict, Rachel Reeves is moving into No. 11 on Friday afternoon, venture capitalists will be hit with a raid on the profits they make from the sale of their assets, known as carried interest.

There is a massive shift that is happening and millions of people are freelancers, millions of people are self-employed already.

Labour is mulling potentially lifting the tax rate on carried interest to bring it in line with income tax – potentially almost doubling it.

And while it has been discussed as a levy on fat cat private equity dealmakers, it also threatens choking off vital venture capital funding for the UK’s start-ups from international sources, he argues.

“The UK’s venture capital industry has been a great success story because of international capital predominantly, because we’ve handicapped our own pension funds investing in the UK.

“If you then say on top of that, we’re going to tax that international capital – [which is] helping to build British businesses and create jobs – at one of the highest rates in the world, it’s obviously going to turn people off.”

While there are clear examples where it’s being “abused”, he says, there are also “100 examples where actually it’s a really important incentive”.

‘Growing urgency’

The central thesis of Wise’s book is that Western countries are transforming inexorably into small business, start-up economies. Ways of working have changed, the priorities of the population have fundamentally shifted, and in business terms, big is no longer beautiful, he says.

But the policy environment has yet to catch up. While it isn’t much of a “vote winner” in the current climate, he predicts it will soon be. He is calling on Westminster to get ahead of it.

“There is a massive shift that is happening and millions of people are freelancers, millions of people are self-employed already. And they’re not well represented,” he adds.

“I would hazard a guess that in the next five years, there will be growing urgency around representing freelancers, self-employed people, small businesses and entrepreneurs, because they’re going to be such an important and growing part of our population.”

Perhaps in five years time, as the occupants of Downing street lay out a reelection pitch, he might find something more appealing.