‘Insane’ — UK tech reacts to government moves that might hand UK startups contract to Barclays Bank

Tech Nation is trailing in second place in the race to remain the U.K.’s government-backed “startup champion” after the latter put the £12 million contract out to tender, according to TechCrunch’s sources. First in line at this point in time — in a decision which is due in December — is banking giant Barclays. Tech Nation’s existing government funding runs until March 2023.

But the prospect of a profitable, global bank taking over the contract has been branded “insane” and “mad” by some key U.K. industry players.

On the weekend, The Sunday Times reported that government officials have been concerned that Tech Nation was “breaching state aid rules because it had failed to become self-sufficient” which led officials to put the contract out to tender earlier this year.

However, although the Times reported that Tech Nation had lost the contract, TechCrunch understands that the final decision has yet to be made. Plus, it’s understood that Tech Nation is intending to carry on “as is”, even without the government subsidy, supported by fundraising from sponsors, subscriptions and partners.

Barclays had applied for the contract through its network of Eagle Labs incubators, some of which have physical locations, but most do not.

It’s thought this, if patchy, nationwide-presence is helping to woo the government in its so-called “levelling-up” agenda as it seeks to boost more start-ups outside London.

If successful, Barclays would also be able to administer the Home Office’s digital visa scheme, though it’s unlikely to have a monopoly on this.

Again, it’s been erroneously reported that Tech Nation would lose this capability. The £12 million funding and the operation of the Visa scheme are in fact separate issues, and the final government decision will have no baring on Tech Nation’s role, designated by the Home Office, to endorse the Global Talent Visa.

Tech Nation has long been embedded in the U.K. tech startup scene. Tech City UK, its predecessor, was launched in 2011 by former prime minister David Cameron and concentrated largely on the London ecosystem until 2018 when it merged with Tech North (based in Manchester). It’s since gone on to run myriad programmes connecting tech startups and scale-up with each other and with investors in the U.K. and abroad.

The nonprofit is chaired by Lord (Jo) Johnson (Boris Johnson’s brother) and chaired by former Sage boss Stephen Kelly.

Gerard Grech, chief executive of Tech Nation, said the body’s work represented a “£15 return on every £1 invested by the government.”

In a statement he told me: “We’ve supported over 4,000 tech companies from around the U.K. More than 30% of the UK’s 122 tech unicorns (eg Monzo, DarkTrace) have graduated from a Tech Nation programme (49 in total to date). Some 44% of the UK’s decacorns graduate from a TN non-dilutive accelerator growth programme (failure rate is less than 5% thus far).”

“Hundreds of tech firms have signed up to the Tech Zero pledge, co-founded with companies like Mozo and Olio, which commits tech companies to Net Zero. Our Libra growth programme shines a light on founders and leaders from under-represented sections of society as does the latest Diversity & Inclusion toolkit we recently launched for tech founders to help them develop a more diverse workforce,” he said.

“Today, Tech Nation’s work represents a £15 return on every £1 invested by the UK Government. This is one of the best ROIs for the taxpayer in the most strategic growth area of the economy,” he added.

Tech Nation’s recently published annual report said it could remain a going concern if government funding was withdrawn.

The industry has reacted, broadly speaking, with dismay that a massive global bank would be handed sole responsibility for supporting the U.K.’s tech startup ecosystem.

One source told City A.M. that the move was “like letting an arsonist teach kids about fire safety” given that the bank would have to support programmes for startups in the fintech space, putting it into a conflict of interest.

Another said the government has “effectively handed Barclays funds to acquire new customers” and was a “potential competitor or customer of the startups it’s meant to be supporting.”

Speaking to me on a condition of anonymity one investor called the government’s decision to put Tech Nation’s funding in doubt was “insane.”

“It’s mad. We need to shout this into oblivion. We can’t hand the support to the tech ecosystem to an incumbent bank! Everyone needs to know how mad this is,” he said.

Another VC told me the decision to put Barclays in the front-running for the contact was “like President Bush declaring ‘Mission Accomplished’ after the Gulf War, when the war was far from over. I don’t know what the government was thinking. I suspect this new government cares more about banking and financial services than tech.”

Brent Hoberman, founder of LastMinute.com and now head of FirstMinute Capital commented on LinkedIn: “[I] Have been a fan of Tech Nation and the hard work and impact they have had and the creativity to expand their role. It’s a tough job and the scrutiny that rightly comes with government money makes it especially hard to experiment. Barclays will need to find leverage to have more impact and scale.”

Ian Merricks, managing partner at White Horse Capital and chair at The Accelerator Network, and a rival bidder for the Tech Nation contract, said it was “hard to be more incensed at this use of public business growth support funding. I imagine the ‘winners’ have a larger lobbying function than we do, as a private sector consortium.”

Tanya Suarez, founder & CEO | IoT Tribe, commented: “Surely this provides an unfair advantage and could be used to influence the founders choice of banker at several stages of growth. I wouldn’t be happy if I were any other UK high street bank or other financial institution that has been supporting founders over the years. Let’s not forget Barclays had a net operating income of £22 billion in 2021 and profits of £7 billion. If they really wanted to do this, they should carved out a minute amount of that to cover the £5-6M a year that they will receive… I don’t believe they need grant money to do it.”

Nichola Bates, Head of Global Accelerators and Innovation Programs at Boeing, said: “I don’t see how this makes sense for Barclays, or the eco-system. At £12m it probably costs Barclays more to bid for it. But surely this is work they would (and should) be doing anyway – without the need for Govt money?”

Grech said the decision was in the hands of the DCMS.

A DCMS spokesperson said: “No final decisions have been made. The successful grant recipient will be announced in due course.”