Dear readers,
As a new year begins, it’s always healthy to reflect on the recent past, as well as look ahead to the new future. And this year, as the challenges of 2020 continue, such an exercise becomes even more essential.
The world around us, both near and far, has become a very different place. At the beginning of 2020, UK unemployment was at a 40-year low. A year later, millions of people have lost their jobs as a result of the pandemic—and the unemployment figure is likely to increase steadily in the months ahead.
Job creation will be a key theme for 2021 in the UK and for many other countries. It’s our belief that the best way to tackle the challenge of getting people back to work is to ensure that the environment for start-ups and scale-ups is turbo-charged.
And there is a real opportunity for the institutional investment community to drive this effort.
Building Back Better
It has become very apparent in recent months that societal expectations about the role of businesses have changed.
For the last 50 years, renowned economist Milton Friedman’s concept that the only purpose of a business was to increase its profits has prevailed throughout the capitalist world. Yet, in 2021 this no longer rings true for many entrepreneurs and is increasingly considered to be outdated by investors.
70% of millennials think that companies have a big role to play in tackling societal problems, and this ethos has now spread to other generations, with investors across the age spectrum demanding that their investments have an ‘impact’.
We totally agree with this. As a business, our priority has always been to focus on investing in the people, the ideas and the industries that will change the world.
And that’s exactly what we’ve done. Through our Ventures and Smaller Companies investment business, we’ve backed hundreds of entrepreneurs over the years. Moreover, we’ve sought to ensure that the entrepreneurs we back represent a wide cross section of society; we have consistently championed policies that make entrepreneurship accessible to anyone, no matter their background.
Entrepreneurs are going to have a hugely important role in tackling the post-coronavirus economic challenges. These include not only creating much needed jobs, but also helping the country navigate its way to meeting net zero emissions targets, as well as levelling up the unjust social disparities across this nation.
To achieve these goals, we have to boost productivity, and this can only happen if:
- The population is equipped with the right skills
- The ideas and creativity of entrepreneurs is harnessed
- The government plays its part by creating the conditions to allow businesses to flourish
Developed countries like the UK can’t be complacent about their future place in the world. This means more resources need to go into research and development. The commercialisation of technologies emerging from universities should be sharpened up, and more focus should be placed on developing the technical skills that will be important to building world class companies.
While overall job creation is critical, we think it is important to create jobs that will drive the overall economic recovery rather than fall into the trap of creating a lot of low skilled jobs in order to merely reduce overall unemployment numbers.
Democratising Business Start-Ups
Rather than focusing on preserving jobs, we think more needs to be done to encourage entrepreneurs to start new companies. And while, according to our recent survey, there are a lot of people aspiring to do just that, there are also many hurdles preventing this. First and foremost is money. We found that 80% of those wanting to start their own company didn’t feel they could afford to do so.
If we really want to challenge the inequalities in our society, this needs to change. We believe anyone, no matter their gender, ethnic background, or personal wealth, should be given a fair chance at starting a business.
We are proposing a Springboard programme to help provide access to mentoring, skills training and, where needed, financial support (in the form of a government grant) to budding entrepreneurs across the country, regardless of their ideas or where they live, in an effort to get new businesses up and running. In our view, such an initiative could help bridge the gap during the difficult first few months so that these businesses can reach the point where they are able to access seed funding from private investors or qualify for a start-up loan.
But economic reinvigoration does not just reside with start-ups. The other half of the equation is creating the right environment to scale existing businesses. And this is where the investment community can help, both institutional and individually.
There has long been a lack of funding for scale-ups. While the growing amount of venture capital and funds focusing on this specific area is helping, there is still a lack of available long-term patient capital. But this need not be the case, as it already exists in plentiful supply. Pension funds should be encouraged to play a more important role in this area, but we also believe the £300 billion invested in equity ISAs could also be a valuable source of finance. We are urging the government to implement a simple rule change that would allow ISAs to invest in unquoted companies, replicating the successful change that permitted ISA investment into AIM-listed companies.
There are deep pools of capital held by institutional and individual investors alike that could easily be repurposed to have a meaningful and sustainable impact on our society.
Building Back Greener
Octopus has been involved in renewable energy since 2010, with renewable assets reaching £3 billion and established solar and wind farms in seven countries across Europe and Australia.
We are proud of the impact our business has achieved, and will continue to achieve, in helping countries decarbonise their power supply. But there is much more to do. We want to develop more renewable energy projects around the world while helping to give investors the opportunity to play their part.
This decade is already proving to be a time of great change. While the pandemic may have catalysed some of this transformation, we expect rapidly changing societal expectations to drive this forward. Socially conscious investors increasingly want their capital to have an impact, whether this is through addressing climate change or helping to rebuild our economy into a fairer, more inclusive society. We are excited by the opportunity of joining up with like-minded investors to play our part in tackling these vitally important challenges.
If you’d like to see more on this topic, you can watch my recent presentation in partnership with Clearlyso.
Best wishes for a healthy and prosperous 2021.
Chris Hulatt
Co-founder, Octopus
