A new report from Cambridge Judge Business School suggests changes to the UK’s innovation and industrial policy to prevent promising companies from being sold to foreign firms too soon, boosting economic growth.

The main issue for UK innovation is the early sale of start-ups backed by venture capital in science and technology. While big sales like ARM and Micro Focus grab headlines, the purchase of smaller, innovative companies such as DeepMind, Solexa, Skyscanner, Shazam, and Neptune Energy by foreign buyers is more harmful to the British economy.

Stunting growth

These early sales cut short the growth of firms in the UK, says the report, which calls for a shift in government funding. Instead of broad subsidies, it recommends focused funding through contracts, grants, and equity investments.

“It is essential that ambitious entrepreneurs with the desire and ability to grow a major UK corporation are given as much help as possible to do so, whether this be as a public or private company,” the report states.

The report also recommends several policies:

• Expanding the Innovate UK grants program
• Creating a US-style innovation procurement contracts program
• Using British Business Bank funds to help innovative firms that adopt employee ownership trusts grow faster
• Reorganizing UK Catapult Centres to resemble the German Fraunhofer Institutes and serve as a source of spin-outs
• Introducing dual-class shares to allow founders and early investors to exit through an IPO in the UK while retaining control
• Developing government-backed special purpose acquisition companies (SPACs) to encourage growth companies to list on the London Stock Exchange
• Encouraging UK institutional investment in growing companies that are listed or considering an IPO, including government subsidies for better investment research on these companies

By implementing these changes, the report suggests, the UK can build a stronger innovation ecosystem, keep high-potential firms in the country, and drive economic growth.