How to stop the UK startup exodus, with entrepreneur and government advisor Alex Depledge

0:02We are effectively underwriting American R &D right now because so many of our founders leave because they can't raise enough capital in this country. 50 % of VC-backed companies in the last 10 years have left, and that's not good. Hello, and welcome to The Sifted Podcast, the show where we help you get to know the brightest and boldest people in Europe's startup ecosystem. I'm Amy, Sifted's editor, and today's episode of The Sifted Podcast is a fireside chat with Alex De Pledge, the entrepreneurship advisor to the UK Treasury and the founder and CEO of architectural startup, Resi. It was recorded live at the Sifted Summit in London in October, where she was speaking with my colleague Kai Nichol-Schwartz.

0:43It was a great chat. I hope you enjoy it. Hello, everyone. I'm Kai. I'm a journalist at Sifted, and I am joined by Alex DePledge, serial entrepreneur who founded Cleaning Service Marketplace, Hassle.com, and is now running architecture startup Ressi, alongside acting as UK Chancellor Rachel Reeves' entrepreneurship advisor. it's fair to say Alex has had a busy four months since taking up the role. Alex, how have you found stepping into number 11? What's it been like? So the good things, the civil service is not as bad as everybody makes it out to be. There's actually some really like quite smart people in there doing really interesting work and they've like looked after me and I've found the difference between running a company and then doing this.

1:33Quite nice after the last five years of grinding shit out. So that's been quite a nice change. The bad things are I've had to find a new wardrobe. You can't go to work in jeans and trainers. So I've literally been dusting off my old Accenture wardrobe. Pretty bad. And then I've been reduced to tears on countless occasions by Microsoft Outlook, Teams, and Windows. those like what are those laptop things i can't use any of it okay so good and bad and what's what's your role actually going to involve you've been in the role four months there's a big push up to the autumn budget what are you doing day to day do you want the context and then i'll tell you what i'm doing day to day um so the the context was that when we talk about business in the uk like not just the government but also like the media not you guys but i mean like the kind of broadcast mainstream media we really are talking about corporations and smes and the businesses that we all run are neither and we don't act in the same way and if policy is designed for smes and targeted then towards startups it doesn't work and if you're trying to build scale up policies and you're using corporates as your frame of reference, again, it doesn't work.

2:53And so I kind of made this point to Rachel around, like, you don't really have anybody around you that's advising you on, like, business, but not just, like, business, but, like, scale-up business, like, high-growth tech companies. And if you're looking for levers to grow the economy beyond housing, you have to look at this sector. Like, we provide outsized returns, like, with a, you know, So I think there's an awful statistic because it causes SMEs. But, you know, I think it's something like 44 ,000 scale-ups in the UK. And they are delivering 1.8 trillion to the UK economy. And they make up 0.6 % of the SME market.

3:32And I think when you think about it in those terms, we really need to be addressing that population and nurturing them and making them feel valued and rewarding that the risk that they are taking open up capital markets. and making sure we can get the right talent. And that's the pitch that Rachel bought. So that's what I'm doing day to day is making sure that we have the right incentives and policies to support this community so that we can double that number and make sure in particular that we're not losing that talent and those exit proceeds and tax returns to the Americans because we are effectively underwriting American R &D right now because so many of our founders leave because they can't raise enough capital in this country.

4:17Is that something you worry about? Yes, because the minute you get a US investor, like I don't want to deter any investor, any foreign investor from putting money into UK companies, but 50 % of VC-backed companies in the last 10 years have left the country. And that's not good because what happens is we're not getting the tax receipts. We're not getting the exit proceeds. But most importantly, we are losing that talent and the first hundred employees of any startup are like an incubator, that's where we learn how to build startups. That's how we learn how to scale. That's how the ecosystem and that flywheel starts to move.

4:57So if that's not in this country, that's really bad for the UK economy. How bad is it for the economy for entrepreneurs like Nick Staronsky to up sticks and leave? There's a reporter earlier this week that he's moved to the UAE. Is that a real negative signal on the UK economy? So I'm going to deal with Nick separately and just talk about the fact that there is an exodus of founders. Like, I mean, most people here will have had someone move to Lisbon or move to Dubai. And it's not just founders, people that are running smaller, you know, businesses or can work from home. You know, we're just a more mobile set of people now post-COVID.

5:34We're in a war for talent and countries set their tax boundaries and limits. and there's not a lot you can do as a country if that individual is optimizing to minimize their company's tax or their tax. What we can do is play in areas that we are stronger in and not try to compete. And what I would say on the Nick move is like I've got nothing but respect for Nick and what he's built with Revolut. It's like an incredible company and he's an incredible talent, but he's worth 38 billion and if he can't be asked to pay a few billion to the UK taxpayer where he built this company and used these services and infrastructure and schools and universities.

6:15Well, good luck to him. What are the key problems that UK startups face at the moment? What are the things that entrepreneurs are going to you, this is really holding us back? I actually would give the startup ecosystem 8 out of 10. I think we've got pretty good talent coming out of universities and starting out. We're recycling that, so we've got multiple founders. I think there's a relatively sophisticated pool of capital and we've got decent incentives around EIS and SAIS. I think broadly startup is about an 8 out of 10. I think the issue we have is around scale up and that is a lack of capital.

6:51It's really like most founders I know just get straight on a plane to the US when they've got a hot startup and they need to raise 10, 20, 30 million. That's a big problem. And we also lack know-how. so scaling founders that have done it multiple times and like I say you look they're the people that kind of like the university that teaches this you know the people around them that skill and we lack that a lot and the final thing that I'd say is regulation really hampers this country and I think Rachel's been really clear that we need to remove the red tape so that basically most founders that I speak to want two things they want access to finance and they want everyone to just get the fuck out of the way.

7:32And I think that's the environment that we need to provide. Yeah, I mean, regulation is a big point that this government has been making. Keir Starmer has talked many, many times about wanting to strip regulation back. What are the regulations that are holding back startups right now? I mean, honestly, like horizontally, it's difficult to say because a lot of the issues sit within verticals. So like within the PRA and FCA for like fintechs, or it might be particularly around like nhs medical like life sciences drugs there's lots of stuff that kind of gets in the way so it needs to be done sector by sector which is what the regulatory innovation office is looking at now is like literally taking key examples and working them through to remove that regulation to create like a blueprint for how we can roll out is deregulation a word i don't really know like whatever it means to strip back regulation but to do that in a quicker manner And you mentioned financing.

8:29That's a really old story now, isn't it? That growth capital is so hard to come by in Europe or is much more difficult to come by than in the US. What can the government do to increase the amount of growth capital for startups? Well, I think they can provide the right incentives for people to put more money in. And I think that one of the areas that I'm paying close attention to is what we can do with the British Business Bank and how it can cornerstone funds rather than be like last money in. So making sure that they're minting funds, making sure that they're quicker to market, that they've got market standard terms, things like that.

9:04Because there's only about 10 Series B funds in the UK. So if we added another 10, for example, we'd double the capacity of Series B. But like you say, Kai, it's not just a UK thing. It is a European-wide thing. And you only have to look at the fact that the EU are paying really close attention to this now with this EU scale-up fund that they're trying to raise 25 billion into. I think that it won't surprise you being a tech founder I think that we are stronger when we are working in lockstep with the European Union and I think that's something that I'm looking to to make sure that we are looking at this from a pan-European view rather than just like the UK on its own because I think the UK on its own is is a mighty mighty nation with lots of really great talent but it's a smaller market and a smaller capital pool than if we were working as a kind of pan-European approach.

9:57A quick one from me. If your company would like to get a message across to Sifted's audience of startup and scale-up leaders, VC frontrunners and tech advisors, why not consider sponsoring the Sifted podcast? You'll help us interview even more movers and shakers of Europe's venture ecosystem and analyse even more of the most impactful trends confronting them. And you'll reach a hyper-engaged listenership too. For more information, see the podcast description. How do you think the UK can work with the EU to increase scale-up funding? Like, what sort of parameters, what sort of, like, I don't know, kind of framework would that need?

10:33I mean, I think from, and this is not a government perspective, I have to be really clear to say that, but I think from a personal perspective, the drive to create, you know, one route into incorporation that maps across, like, the other EU member states, and I'd want to include the UK in that, is one approach, like removing the barriers to operating across what should be a common market. I think the second thing is making sure that we are investing alongside our French and German and all of the other countries, of course. You know, peers, I think is a good thing. And doing what we can to make sure those links are really, really tight between what's going on in those other startup hubs and then what's going on in the UK.

11:15Is there much work being done to try and capture the talent which a lot of people think is going to be leaving the US at the cost of an H1B visa has shot up recently? I know founders who are already looking to try and take advantage of that and hire incredible talent that was considering moving to the States. Is there any talk in government? There is. What I loved about that whole weekend where Trump came out with his tax on the H1B visas is the ingenuity of the founders across the UK ecosystem that just came out straight away and was like, right, if you want to come here, I'm going to make that happen for you.

11:52And so my cautionary note in all of this is actually like, I think that we talk the UK down a lot and it's actually a much better place to start and run a business than many other places. And we've got a lot going for ourselves. so we need to be really careful that we don't manifest our own destiny at the bottom of the rubbish pile because I don't think that's where we need to be and when it comes to solving these problems I don't think we should always be looking at government to solve them because actually we're quite tenacious as founders and quite dynamic and come up with solutions and you saw that with with that opportunity that Trump created but to go back to the original question yes like straight away Rachel was whatsapping going who is doing what on this how do we get it out the door and within 48 hours we'd established a concierge service to make sure that for exceptionally talented people we had a single point of contact where we were going to be able to fast track those visas at a lower cost through government and what do you think is the most misunderstood thing from the government side about startups when you when when you went into government what was the point where you're like ah you don't really get that part of it what they don't get about yeah yeah hmm i'm not sure i should say this that's always a good start to an answer.

13:04Yeah, but someone will be filming it and it'll be on like Instagram or somewhere. I think what I've been most disappointed about is the stakeholders that government engage with. So there's been a few times where I've been sat in meetings and I've been like, what? Who said that? And it's the lobby groups. And it's lobby groups that apparently represent us, like the BVCA or I'm trying to think of some of the other ones I've come across. And I'm just like, I'm not really sure that that's true. And so what I am trying to do is, and I know it's a really inefficient way of doing it, but what I'm actually trying to do is bring in founders to government so that you can hear it firsthand.

13:45Because I think founders put a really emotive and human touch to running a company, right? A company is more than a spreadsheet or a zero account, right? It's got real people in it and we're trying to solve real problems. and there's a lot of like angst that goes into running a company. That is impossible for a lobby group to convey. And sometimes when things get kind of like layered up, the end answer is not what's going on on the coal front. And so what I'd like to see is actual real voices talking to government because I think they could make much more informed choices and better decisions if they were talking to the right people.

14:23Do you think Rachel Reeves gets it? Gets what? Startups. Gets what they need. Yeah, my first question to her when we sat down when I was presenting my budget package was, what is your, out of 10, what is your ambition for this sector of the economy? And she just deadpan me and said, it's like 11. Okay. So I do, I think she's not great sometimes when she's reaching for examples. She reaches for like British Steel or I don't know, like GlaxoSmithKline. And I'm like, Rachel, can we get a scale up or a startup in there? but the tide is turning and I can make you one promise I can't tell you what's going to be in the budget and I can't tell you where they're going to raise money from because I'm not privy to some of those conversations although I do try and stick my oar in what I will say to you is that this budget will be a budget about innovation and it will be a budget about entrepreneurs and I hope when it comes out it speaks to the people in the audience because it's got my fingerprints all over it and if it doesn't speak to you well then I deserve to be shot.

15:26How receptive have you found policymakers? How receptive have you found policymakers to your input? I think a little bit sceptical at first because the Treasury is a very sceptical place. And I understand that because everybody who goes to talk to them is going with an agenda. And so there's this healthy dose of scepticism of like, you know, what do they want from me? And at first, I think I was viewed through that lens. But then because I sort of went in and was like, well, let's not go in and ask for money, right? Because there isn't any money. I think we've got that pretty loud and clear, right?

16:02So I was like, well, what does startup founders do? They try to find a way through in a constrained environment, right? We're eternal optimists. And so I was like, well, where are we spending money? And what is it buying for us? And can we spend that money in a better way? And so the stuff that I've been doing is like broadly cost neutral, but should have hopefully good consequences. And I just think that when I started to do that and I wasn't going around with like Oliver asking, please, sir, can I have some more? They were a bit like, oh, she's a bit different. So I think the kind of view now of me is that I'm credible.

16:39Are you able to share anything about what you're trying to do at the moment? Yes. So like I said, I'd give the startup arena eight out of 10. and I decided the best advice I got before I went in was only try to do three things, no more than three things. So I was like, right, well, I need to pick wisely then. So I immediately said, start up. I'm not touching it. It works. And then I met with Vroom Chandra, who is Kirstarmer's business advisor, brilliant guy. And we agreed he was going to take capital markets. So I said I'd support him, but he was going to do all the work at that end, which has been super interesting, actually like the capital markets behave nothing like the press believe that they do and i was going to take this bit in between which i've nicknamed the valley of death so the bit where like we failed to commercialize our r &d quickly enough and we can't get that last check in the bit where we sell too early or the bit where we're forced to raise money that's not uk money and everything that i've been doing is trying to get more money into that part of the economy tax advisors have already begun reaching out to me to tell them that they're getting lots of outreach from founders looking to sell shares they're worried about capital gains tax rising again are they worried about nothing so this is one of the most frustrating things that i have come across is the sheer that like the vast amount of speculation that goes on in the press and literally it's always like a source in treasury when you read that that's not treasury source.

18:09That's just a journalist who wants to say something to see what the reaction's going to be. Most of the stuff that I read in the papers is not being talked about in Treasury. I can't put it any simpler than that. You're all panicking for no reason. Rachel has assured me she doesn't want to do anything that hurts growth. Can you give us any indication about what the direction of travel might be come November? What do you mean whether it's like break a manifesto, a pledge, raise some more money, tax the shit out of property? Absolutely not. What's to come for you in your role as entrepreneurship advisor?

18:44Are you going to stay after the November budget? So, basically, my pass expires December 1st. So, I see the budget through and then this role is finished. And the reason for that is I'm a direct ministerial appointment, which means I didn't interview for the job. So, in the wonderful, like, egalitarian society that we live in, quite frustratingly as an employer, like, you know, we have to tick all these boxes. I don't know whether they will ask me to stay or not, but from my own personal point of view, I felt like I took quite a big risk going into government. Most of you probably don't even know who I am, so I don't expect you to.

19:20But in my own little world, I've done all right, and I'm quite well respected. And I thought, if I end up hitching my cart to the wrong horse here, this could be pretty bad. But the goal that I set myself was to see how the community receives the budget and I think if I feel like I've done a good job after the budget and done what I aimed to do which is not just kind of like enjoy the title flounce around Westminster for a little bit and meet like a bunch of like semi-famous politicians then you know I might be open to doing something else because I'll feel like maybe I'm slightly effective but I think really I need to see how I'm judged first yeah makes sense we've got about five minutes left Does anyone have any questions at all?

20:03We should have a roving mic. We've got the gentleman just there. Nigel Farron, Fundability. The pension funds are dragging their heels on investing in innovative startups. Do you think the Chancellor should mandate that government pension funds should invest in those innovative startups? Thanks for the question. I think for those of you that it was a bit quiet, it's about pension funds and is Mansion House going to work and is it happening quick enough? My personal opinion is no, 2030 is too late. The package that is in Mansion House is like altering, it's a structural package, so it will take time to come through.

20:38But I am encouraging us to look at that more closely. And I don't think Mandation will work because ultimately what the pension funds are indexing for right now is the lowest possible fees. because apparently employers are very sensitive and half a BIP makes the difference between default pension fund A and B. So for me, if you mandate it, all that's going to happen is that money's going to flow into the worst performing funds. I think what we need to do is look at the incentives in pensions because if you look at the Australian method of doing this and you look at the way that VC works, you know, Charlie Munger, show me the incentive, I'll show you the outcome.

21:22We need to tie pension fund performance to remuneration in some way or fee structures in some way. So they're actively encouraged and seek out higher risk capital. So as I said to Rachel, I can provide the funding pathways through the BBB, through funder funds, through funds into our companies. But unless we turn the taps on to what is essentially trillions of pounds, we're not going to be able to fund our startups and economy properly. And that's because of it. For those of you that don't follow pensions, like why would you? It's slightly boring until you get to about 55. We have de-equitized our markets because after we moved from defined benefits to defined contributions, all of that equity flowed out of our markets.

22:07We used to hold 60 % of pension funds in UK domestic equities. And now it's 4%. It explains the entire productivity problem. it explains the entire lack of investment problem so for me this is the number one thing that we have to solve in the next 12 months what about getting the vc i'm gonna i'm gonna cut in because we've got a few questions we haven't got a couple of minutes left does anyone else we've got a question just there thank you yeah hi paul mark categorical we help out startups positioning thanks for your honesty really refreshing thanks alexandra and you're a proper entrepreneur Sure.

22:41Part of the honesty was you were talking about people getting on planes, and I see it all the time with Europeans just deciding the States is a better place. How serious do you think people that you work with in the government are about entrepreneurship and tech? Pizza Car's got zero business experience. What confidence can you give us? Yeah, I think that's a fair critique. And I think that if you look at, you know, Poppy Gustaferson, who left because of family stuff, and now Jason Stockwood in the, you know, they're both entrepreneurs in charge of the office in investment. You had Matt Clifford, who left number 10, but my God, Matt, it blows up my phone every day.

23:20So trust me, he's really active. Replaced by Jade, who is like insane AI researcher. Tom Adeula, who I've worked with for years, who's now in charge of Innovate UK. And Ian Chapman that's coming to UK. and now me and Treasury, there is a slow march of entrepreneurs into getting our fingers into the inner workings of government. So yes, there might not be any ministers. And let's be really honest, right? Keir Starmer, whatever you think of him, he's only got his body of 400 people to choose from. That's his talent pool, right? That makes it quite difficult if you want to get some really good talent in there.

23:56And I'm not saying that the MPs that are in there now are not good. I'm just saying it's a finite pool. So they're doing the right things, right? They're pulling people from business in. And actually, Rachel laid down a very clear mandate for me to civil service, which is why I think I've been so effective, is that she said, Alex is my person. What she wants, she needs to get. And I think when you've got that level of backing, you all should be reassured that this government is taking our sector of the economy very seriously. Okay, thanks very much. That is about all we've got time for. Alex, thanks so much for coming along.

24:29It's been good.

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