The Guardian view on venture capitalism: investor profits are no industrial strategy | Editorial
Britain has sold 300 of its most valuable companies to foreign buyers, mostly American, over the past decade, according to the Financial Times, raising questions about the country's innovation strategy.
Britain keeps selling its most valuable companies to foreign buyers, mostly American, with 300 such deals occurring over the past decade. This trend raises a fundamental question: what if innovation were scaled up to serve social needs in the UK rather than US investors' profits? That is the provocation issued by the thinktank Common Wealth in a paper titled We Aren't the Champions, which directly criticizes the UK's venture capital industry.
UK tech pioneers sold too early
The authors of the Common Wealth paper argue that as long as the UK remains subordinated to American capital, getting startups to achieve heavyweight size will be a sisyphean task. Britain's tech pioneers are often sold before they can become global giants. A prominent example is DeepMind, founded in London in 2010, which was acquired by Google just four years later.
Britain's venture capitalists might claim they are in it for themselves, not for building up British tech. The conventional wisdom suggests that if startups struggle to grow, the problem must be lack of capital. That's why Chancellor Rachel Reeves wanted pension funds to invest in UK assets, but the paper warns this risks making things worse.
Circular logic of tech sales
Researchers from the London School of Economics, Nils Peters and David Kampmann, expose a circular logic: the UK lacks tech giants that can acquire successful startups, but selling those startups overseas perpetuates this problem. They found that US and European incumbents benefited significantly from the exit of the 38 biggest UK VC-backed tech firms between 2010 and 2023, including businesses at the forefront of AI, fintech and biotechnology.
Britain should retain ownership of its innovations. But there is a difference between financial returns and industrial development – and improving the former doesn't necessarily deliver the latter.
Alternative models proposed
The Common Wealth paper suggests a different approach to capitalism, historically associated with the global south: curbing extractive intermediaries, limiting foreign capital, and building domestic capacity. They point to India's publicly funded space programme and Ethiopia's state-owned airline as examples of how sustained public investment can support homegrown capabilities rather than preparing businesses for quick sales.
Most notably, Brazil linked universal healthcare for 215 million people to industrial policy, using public purchasing, laboratories and technology transfer. During the pandemic, by August 2021, almost three-quarters of Covid vaccine doses administered had been produced domestically. The paper argues that making the fulfillment of social needs a motor of economic development would give policymakers a purpose beyond managing scarcity.
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