Saul Klein of Phoenix Court venture capital emphasises private investment in growth and innovation and the huge potential to increase the amount of investment in scale-ups.
Full speech transcript
What I want to talk about is not innovation and not about growth. I want to talk about change. And the reason I want to talk about change, and you know, Gordon, you spoke about it this morning, is you made the point that since the 50s, we’ve been in managed decline.
I think those are the words that you used. And arguably, you could say we’ve been in managed decline since the 1880s. When the UK last had the number one spot in global GDP.
I’m going to say something which we hate, not just in the UK, but in England, and possibly in Scotland as well. I’m going to say something optimistic. We are at worst number three in the world at innovation.
Sometimes we’re number two, sometimes we’re number three, but globally, we’re on the medal table, silver or bronze. Which, you know, with an economy that was number one in 1888, and is now number six, seven, or eight, going to 10 in 2025, is a good place to be. So we should be really happy that we are in one of the world’s great innovation economies, whether you’re in Scotland, whether you’re in Greater Manchester, whether you’re in Bristol, whether you’re in London.
So that’s the good news. We do do innovation really well. We punch way above our weight in innovation.
And actually, within the innovation economy, not only are we growing, we’re growing at a spectacular rate. The amount of venture capital in the UK has grown 10x in a decade. The enterprise value of companies in the UK has gone from 110 billion to 1.4 trillion in a decade, more than 10x.
So that’s where the growth is. There are 800 venture-backed companies in the UK doing over $25 million in revenue, 800, across sectors, across the country. So don’t let anyone tell you we don’t do innovation well, and we don’t do growth well.
But, and I think this is what we want to talk about. And, you know, it was discussed this morning, Kate talked about it, Kazim talked about it. The numbers are absolutely clear.
And in my public sector life, not my private sector life, I’ve been advising the Prime Minister, or been on the Prime Minister’s Council for Science and Technology since 2021, which means four prime ministers, six chancellors, and about eight science ministers. Hopefully, we’ve got some more consistency now. But the advice has been consistent.
We’re great at innovation. The innovation economy is growing. At early stage, we are actually equivalent in funding to the Bay Area.
But when it gets to growth stage, or scale-up stage, rounds of 100 million plus, we are 30 billion light annually of the Bay Area. And what does that mean? That translates into enterprise value. I’m not an economist.
I’m not a scientist. I’m not a technologist. I’m a humanities graduate, sorry to say.
And that’s what it is. 30 billion a year that we are light at the scale-up stage. Now, here’s the problem, two problems.
And then I do think it’s, I think Andrew and I, and we just want to have a conversation. The problem is we’ve got a $3 trillion economy. That’s our GDP, plus or minus.
We have a stock exchange that is around 3 trillion. We have 6 trillion pounds of investable assets sitting in cash, which is like the equivalent of putting your money under a mattress, about 700 billion. And the rest is in insurance companies and pension funds.
So we’re not short of investable capital to invest in our innovation economy, in infrastructure, in real estate, otherwise known as factories, data centres, wet labs, affordable housing, or in venture capital and private equity. However, of that 6 trillion pounds, which is double the size of our economy, we invest less than 1% in what’s called private markets, venture capital, private equity, infrastructure, and real estate. Now, if we didn’t have such a great innovation economy on our doorstep, you’d say, oh, well, hopefully we’re investing that in someone else’s innovation economy.
No, we’re not even doing that. So what happens when these 800 companies, which, by the way, you can’t even invest in a cohort as large as that anywhere else in the world other than the Bay Area, need capital to scale? So they do have access to capital. And the first Prime Minister and Chancellor we gave advice to on this topic, the analogy we used was we are great at inventing engines in this country.
Think Rolls-Royce. We can put an engine on a plane. But when the plane goes on the runway, get ready for the scale-up stage, and it’s ready to fly around the world and create value, who pays for the fuel? And this is what’s really damning.
We only will pay for 20% of the fuel. What does that mean? It means 80% of the economic value, the securonomics, the economic sovereignty goes to the Singapore metro system. It goes to a teacher in Ontario.
It goes to a nurse in Denmark. It goes to the Saudi royal family. It doesn’t go to a saver in Wrexham or Strathclyde or Preston.
So the tragedy of our innovation system is not that we don’t have it, it’s that we don’t invest in our innovation system. We don’t even buy from our innovation system because the other huge lever that government has is procurement. So actually what we need to do is pretty clear.
We just got to do it. What’s not clear to me, and I’d love to know if people have good ideas about this, is why is it in the Bay Area 80% of this scale-up capital is domestic, aka American, but in Germany, in the Netherlands it’s about 15%, in the UK it’s about 20%, in Israel it’s 20%. The only European country where it’s in the 30% range, it’s around 35%, is France.
I would say that this is ultimately about sovereignty. We were asked at a dinner that we had last night, and I just also want to say a very big thank you to my old friend David Muir, an alumnus of this fine university, who encouraged me on multiple occasions to come up to Scotland. What’s really amazing to me about being here is that I think Scotland has in its DNA the answer to change.
Number one is boldness. Number two is patience, because change doesn’t happen overnight, and sort of number three is a spirit of independence, because we can keep on innovating brilliantly, but if all we’re doing is innovating to improve the economic lives of other people, charity begins at home. We have to ensure that the fruits of our economic growth and our innovation economy is local, is regional, and is domestic.
I’m definitely not arguing for economic nationalism, but to me 20%, we have to have a higher number than that. I want to advocate for change, not just innovation and growth, and thank you very much for having me here.
