Currently in Britain, the most amount of R&D is spent on pharmaceuticals. However, advances in cognitive neuroscience are pushing research into less conventional avenues and more towards experimentation with new technologies. As a consequence, the global world is becoming less focused on pharmaceuticals and moving more towards neuro-enhancement, biohacking, transcranial direct current stimulation (tDCS), low level laser therapy (LLLT) and nanotechnology. In fact, President Obama has said that in the next decade, treatment with pharmaceuticals will be replaced by nanotechnology and tDCS in the United States. Although universities such as Oxford and institutions such as the National Institute for Health Care Excellence have done research into these areas, the startups that are being launched with these technologies are essentially nil in the U.K., partly due to the lack of research funding and also because the U.K. is dominated by investments into the pharmaceutical sector and not towards these new technologies.
South Korea is approximately 1/4 the size of the U.K. with nearly the same number in population. They spend the most percentage of their GDP developing new, experimental technologies and ranks 4th in the world in launching the most number of patents per year.
In fact, compared to the rest of the world, South Korea has spent the equivalent of 4.1pc of GDP on developing new technology and products, Japan 3.4pc, Germany 2.9pc, the U.S. 2.7pc, France 2.2pc whilst the EU average was a mere 1.9pc according to the latest OECD data from 2014-2015. In every sector, China has been driving growth in IP by launching the most amount of patents, up 4.5% from 2013 to 2014, having launched 2.68 million patents in 2014 alone. China was followed by the U.S. (578,802), Japan (325,989), and the Republic of Korea (210,292).
One continuing trend I have noticed in regards to London's startups is that there is an air of ambivalence about intellectual property (IP) and patent generation and many startups do not consider launching patents as a necessary part of their evolution and scaling up potential.
There are only 2 hi-tech firms listed on the FTSE 100. Professor Alex Edmans from the London Business School attributes this to a lack of investment in R&D from thirty years ago.
In the last five years, more funds towards research have been spent on IT and the tech sector, mainly due to the policies of PM David Cameron; however, Britain has been behind the trend in other sectors, mainly due to a lack of R&D funding. I recently read an article by Professor Alex Edmans at London Business School recently in which he writes that British firms used to be leaders in the chemical, electronics and electrical engineering industries, but a lack of investment in R&D thirty years ago became a reason why there are currently only two hi-tech firms in the FTSE 100.
A lack of investment in IP and a focus on short-term profit by U.K. investors can be holding back Britain's startups from potentially scaling up.
In addition, Professor Edmans also comments on the lack of scale-up in the U.K. startup scene despite there being a boom in start-ups, and he thinks this is mainly because of the lack of funding into "intangible investments" and that VCs are apprehensive about money spent on intellectual property and brand, which in turn prevents startups from raising capital vital for developing into sustainable, value-generating enterprises. Instead, he further assesses that due to the nature of investors focused on the "profit ball", and short-term profit due to the nature of dispersed investors in which companies often have fragmented shareholder bases with many investors, each holding a relatively small number of shares so that they may not be particularly attentive to closely examine what a company does, but a tendency to concentrate on short-term financial figures. This is what he considers one of the obstacles of intangible investments, which can take an average of 4-5 years before it can show up on the balance sheet.
Every major market has their own native version of a search engine, universal eCommerce platform and social network and messaging platform except for the U.K. and the majority of the E.U.
Another reason why Britain's startups have not scaled-up can be due to the fact that the U.K. lacks a dominant native company that is investing in R&D and actively making acquisitions. Instead many of the UK's most promising startups are acquired early by dominant U.S. corporations such as Google and Twitter. This is, of course, great news for investors, who immediately make a return on their investment; but in the long-term, Britain's startups are prevented from reaching their full scale-up potential. On every continent, there is a dominant native company in search, social network, technology, and eCommerce. The U.S. has Google, Amazon and Facebook and China has Baidu, Alibaba and WeChat; South Korea has Naver, Coupang and KakaoTalk; Japan has YahooJapan, Rakuten and Line, and even India has FlipKart. However, the U.K. has neither a dominant native company in search, social networking and messaging nor even a universal eCommerce platform, despite that many eCommerce startups are launched in the U.K. Global intercommerce transactions will be through a nation's native eCommerce platform as Alibaba, Amazon and Flipkart have taught us. This is something to consider as Britain moves towards a post-Brexit world.
By Sierra Choi
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