A guest post by David Mytton
All around the world, governments are spending time and money to figure out the best way to attract the attention of entrepreneurs. New startups are a great way to stimulate the economy because they are seen as innovative and exciting, create new jobs and are in a unique position to generate real value just from an idea. Over the last five years, the British Government has announced changes in every annual budget to help nurture the growing ecosystem that had already started to establish itself organically in the United Kingdom. In my opinion, the effect of this has been to make Britain the best place to start a new business in 2012. Here’s why:
1) The barriers to starting a company have been falling.
Over the last 10 years I have been involved in the creation of five businesses in the UK, either as a sole founder or part of the founding team. In 2001, when I was 14, I did freelance programming in between schoolwork and formed my first company from my bedroom in Birmingham, England just a few years later. Since then, the regulatory and legal requirements behind exploring commercial ventures have actually become easier here. Whether that is registering as self employed and filling out a tax return through the U.K.’s color-coded online system, or incorporating a company in about an hour for £14, the barriers to getting started have been steadily getting lower.
2) The British tax man is dealing with startups more intelligently.
Britain’s tax authorities have become smarter about their understanding of how businesses begin, (often unprofitably) in the early years. Now in it’s third year, my current startup has been able to claim real cash back on R&D expenses which can include the salaries of my 10 employees because they are all engineers; a benefit which will switch to tax credits as we hit break-even.
3) A variety of helpful financial schemes.
The British government provides several financial schemes that offer significant tax benefits not just to smart investors who can afford expensive tax advice, but also to the founders and even employees of companies. If you sell your company, you can claim up to £10 million of Entrepreneurs Relief and investors can claim up to £150,000 in tax credits on their investments each year. Joining an early stage startup is a risky move for individuals and they are often incentivised with stock options. Employee share schemes can be set up to allow these to be cashed out under capital gains tax at lower rates of around 20% compared to income tax of up to 40%. Many of these benefits have only existed since 2008 and each year the thresholds have been bumped up – for example Entrepreneurs Relief was just £1 million in 2008, increased to £5 million in 2010 and following changes in 2011 now sits at a limit of £10 million.
4) The benefits are not just limited to British citizens.
Anyone resident in the European Economic Area can relocate to Britain, but from last year, a new category of visa was created to allow anyone from anywhere in the world to enter the UK and establish a company, so long as they have £50,000 of UK-based investment. This follows a trend set by other countries also trying to encourage immigrant founders. Chile leads the way by paying you up to $40,000 to move there, with no inward investment requirements. Singapore and Ireland have similar schemes as the UK, which all need a certain level of investment to qualify. Somewhat surprisingly, the US lags well behind with fairly stiff requirements, such as already having $1 million minimum investment. But that is looking to change with the StartupVisa Act which is supported by big names such as Fred Wilson of New York’s Union Square Ventures and Paul Graham from Y Combinator, a Silicon Valley based startup incubator. However, it is somewhat telling that this movement came from the grassroots level back in 2009, rather than being instigated by the government itself, and still has to pass through the House and Senate.
5) The rise of Seedcamp and government support.
The difficulties involved with moving to America to start a company as an immigrant has sparked the growth of incubator programs outside of the US with direct access to hundreds of well-connected, local mentors. Seedcamp, perhaps the biggest one outside of the U.S. and an investor in my company, Server Density, runs its program throughout Europe and has recently started to branch out further east, into Africa and even on the East and West Coast of the United States. Yet the main Seedcamp Week event, which all the other events feed into, is still run in London, where Seedcamp is based. Recognizing the importance of London, UK Trade and Investment, part of the British Government, established the Tech City Investment Organization in March 2011, amid a lot of noise from the government about East London being the place to be for tech companies. Whilst I don’t agree that just a single area of the city should receive all the attention — it should really be about promoting the whole city, if not the country — it highlights another way the government is trying to encourage the ecosystem through involvement of high-profile companies like Cisco, Intel and Google and by offering incentives to be based there.
The United States has been a great place to run a company for a long time but now, the scene has been set for Britain to really show off the kind of companies that can be created here — from well known successes like Last.fm (acquired by CBS), Message Labs (acquired by Symantec) and Tweetdeck (acquired by Twitter) to fast growing startups like Mind Candy (behind Moshi Monsters), Red Gate Software and Spotify. The tech industry is one of the few that has been mostly immune to recession, explaining why governments are focusing so much on it, but you don’t have to be in tech to take advantage of running your company in what I see as the best place to be: the UK.
David Mytton is the founder of server monitoring startup,Server Density. He has been programming for over 10 years, regularly speaks at tech conferences around the world, co-founded the Open Rights Group and can usually be found cycling in London or drinking tea in Japan.