I once went to a talk by Sir Martin Sorrell, who said he had no interest in investing in UK or European markets any longer because there is no appetite for technology. The markets favour construction and financial services, along with tons of friction. His view was that Asia has it right.
The world has two working models for backing startups at national scale. America does it through deep capital markets and a venture industry that funds risk at every stage, with universities like Stanford and MIT pumping out founders and IP into ecosystems that absorb them.
Asia does it through the state.
Government picks the postcode, pays for the density, builds the university-to-corporate pipeline, and puts patient capital behind it. Risk capital arrives early, talent concentrates, big companies feed the small ones, exits happen.
Europe does neither well and seems hellbent to keep it that way. In the UK, investment houses take a banker's view of startups with the government pretending to care - but really just adding friction.
We do not have the capital markets to copy America, and we do not have the political appetite to copy Asia.
We try to imitate Silicon Valley with grant competitions and call it an industrial strategy. It is no surprise that Europe's startups are wearing clogs to a space race.
Look at what the working models actually look like.
Korea
South Korea decided innovation needed a postcode, not a grant scheme. Pangyo Techno Valley opened south of Seoul in 2011 and now hosts over 1,800 startups, labs and tech giants, with Naver, Kakao, Nexon, NCSoft, SK Hynix and Samsung all maintaining offices there.
The cluster generates over 77.4 trillion won, around $58 billion, in annual sales.
The Korean government has been investing nearly $2 billion annually into the startup ecosystem since 2013, with the Startup Campus alone funded at $114 million across 180,000 square meters.
The second-phase expansion requires every consortium running a block to allocate at least 30% of total floor space to startup use for ten years, free of charge. So the system starts to feed itself.
I was amazed when I saw firsthand how Korea had decided where centres of excellence would be based and had told companies in those sectors to base themselves there.
Big companies stay because the talent is there. Small companies grow because the big ones are next door. They get deals done because government has removed the friction rather than cause it.
They get deals done because government has removed the friction rather than cause it.
China
China runs the same idea at scale.
In December 2025 Beijing launched a national venture capital guidance fund seeded with around £11 billion, designed to mobilise a total of $138 billion through regional funds and sub-funds, with at least 70 percent going to seed-stage and early-stage enterprises.
That sits on top of roughly 1,800 government guidance funds with a target capital size of around US$1.52 trillion.
Small low-profit enterprises pay an effective corporate income tax rate of just 5 percent rather than the standard 25 percent (source).
The state also takes equity directly. This is a genius move designed to stop startups from misbehaving.
So-called golden shares give the holder 1% of equity and one board seat, keeping state influence inside strategic companies. The Chinese government is a counterparty, not a referee.
The university link is the part that makes the whole thing work, and it is the part the British politely ignore because academia and business aren't encouraged to mix.
This is completely wrong. UK incubators are disconnected from commercial reality. That is not their fault. They are being sold a dream that follows US models without the support at the end of the journey.
I've spent a lot of time in China and its support for startups is largely based on pointing brilliant people at university into complex problem solving around a geographical environment of commercial activity.
I once went to Tsinghua University Science Park. TusPark, is currently the largest single university science park in the world, with a total area of 770,000 square meters and more than 1,500 enterprises, and has roughly 30 branches across China.
A small company sits in the incubator. Bigger companies in the same park hire them part-time to solve specific problems, providing cashflow while the startup builds. Some of those engagements turn into acquisitions.
The government connects everything and the university supplies talent. The corporates provide cashflow and the exit. Everyone has a reason to keep the small companies alive rather than squeeze them before they've made a bean.
The American version of this grew organically around Stanford and MIT. The Chinese version was engineered.
Everyone has a reason to keep the small companies alive rather than squeeze them before they've made a bean.
Now onto Britain.
Innovate UK manages a budget of £1.1 billion, backing more than 450,000 "innovators" annually. The flagship Smart Grant was the route most early-stage businesses targeted.
In January 2025 it was suspended after only 44 projects got funded out of over 2,100 applications, a success rate of 2 percent.
The Women in Innovation programme initially funded only 25 female founders out of 1,452 applications, a 3.4% success rate, before public outcry forced a reversal.
Dr Ewan Kirk, founder of Cantab Capital Partners and chairman of VC fund Deeptech Labs, has said it is "almost impossible" for small businesses to make successful applications for funding without getting third-party help, and argues that Innovate UK should take equity stakes in promising businesses so the country gets a direct return.
He is right.
Trying to get money out of Innovate UK is like trying to get blood out of a stone, baked in titanium, locked in the eternal prison from Superman II, floating in space forever. Companies waste months on this theatre.
Trying to get money out of Innovate UK is like trying to get blood out of a stone, baked in titanium, locked in the eternal prison from Superman II, floating in space forever.
But...
The picture is not as bleak as Innovate UK alone suggests.
UK startups raised $23.6 billion in 2025, a 35% increase on 2024 and the first annual growth in four years, more than Germany, France and Switzerland combined, and the innovation economy is worth a combined $1.3 trillion.
The British Business Bank takes equity, not just debt, and has supported 11% of all UK smaller business equity deals and 15% of total smaller business equity investment over the past decade, with £8bn of equity deployed in the last three years, rising to £25.6bn of total capacity from April 2026.
| UK (BBB) | China | |
|---|---|---|
| State capital being mobilised | £25.6bn total BBB capacity by 2026 | £110bn in one new fund, on top of £1.2tn across 1,800 existing guidance funds |
| Time horizon | Annual budget cycles | 20-year fund lifespans, 10-year investment + 10-year exit |
| University-corporate link | Loose, mostly ad hoc | TusPark engineered into 30 cities |
| Geographic density | None engineered | , Zhongguancun, Shenzhen, Hangzhou, all state-built |
| Big company involvement | Voluntary, transactional | Required, structural |
| State as counterparty | Mostly debt guarantees | Equity, golden shares, board seats |
EIS and SEIS are world-class tax incentives, with the EIS annual limit rising to £10m, £20m for knowledge-intensive companies, and the lifetime limit doubling from £12m to £24m.
The connective tissue
But it's not just about money. It's about the ecosystem and the connective tissue.
Schemes to get money are only one part of the problem. Getting businesses to help each other and exchange value is another entirely.
The real structural problem is the scale-up gap, not the seed gap. More than 70% of UK VC investment flowed into rounds above £25m last year, but the UK still lacks sufficient domestic growth capital, so the best companies hit Series B and pivot to American money and soil.
In other words, the UK builds great startups, but doesn't nurture them.
The UK is Europe's largest tech ecosystem. The problem is not absence of capital, it is the wrong shape of state involvement. Britain treats startup support as a fiscal accounting problem.
The UK's instinct is always debt over equity, because debt looks tidier on the Treasury balance sheet. It's very short term.
You can see the debt instinct everywhere. Start Up Loans cap at £25,000 at 6% interest. Innovate UK is pushing founders toward innovation loans rather than grants, on the rationale that repaid loans return to the pot.
The investing idea is too scary for most - and therein lies the problem. The appetite for risk and the mindset is lacking more than the lego bricks to make it work.
People keep asking how governments should drive growth. From the bottom up, this is how. You create lasting value.
The answer is to pick a working model that suits all parties for a win-win scenario. Not to blindly copy the US model and shoehorn poorly thought-out tax and regulations into the mix.
In an environment where government is so involved anyway, wouldn't it be better to take some lessons from China? (Minus the disappearing of founders.)
The British approach of running grant competitions while pretending to be Silicon Valley is the worst of both worlds.
Britain has the raw material - the universities, Europe's deepest VC pool, world-class tax incentives at the front end - but they're not enough. What it lacks is a state that treats startups as long-term national infrastructure rather than annual line items in a fiscal forecast.
Until that shifts, startups won't make it anywhere near as far as the US and China are heading.
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