THE BLOG
24/10/2013 10:28 BST | Updated 23/01/2014 18:58 GMT

Tech Start-ups Are the Last Businesses That Need Government Help

Twenty five million pounds of government money has been poured into a venture capital fund for tech start-ups. With the Episode 1 fund they are, they say, "determined to give entrepreneurs the financial support they need to grow".

Tech company founder Christian Nellemann, group CEO of XLN Telecom, says the government should focus on supporting small businesses rather than 'safe' tech start-ups

Twenty five million pounds of government money has been poured into a venture capital fund for tech start-ups. With the Episode 1 fund they are, they say, "determined to give entrepreneurs the financial support they need to grow". Before I say what's wrong with the idea I'd like to state for the record that, in its intentions at least, it's a great move to support a potentially very exciting sector of our economy. Unfortunately it promises to neglect 99 per cent of the 'S' in SME, and these are the companies desperate for, and deserving of, more government assistance.

At last count there were around 4.8m small businesses in the UK, employing 14.1m people, accounting for 47 per cent of private sector employment. Tech start-up support, for worthy investments, is everywhere but it is the first few years of proper trading for small businesses that are essential for growth and yet in this period the UK's small businesses are all but abandoned and left to fend for themselves. They pay the most tax but get the least help, and are crying out for a reduction in business rates and employment costs - things that would give them the room they need to breathe and grow.

Again, this isn't to say that I would take anything away from tech start-ups - having founded XLN Telecom a broadband service provider in a market dominated by a goliath like BT, I've been in their position. The fund will be great for the 20 to 30 entrepreneurs that secure it but I suspect they'll be the ones that would have received funding offers anyway. After all, it's not as if there's any shortage of help for them. The business media, reflecting the attitude of many in the business world, are almost hysterical in their coverage of tech start-ups. Billions are already thrown at the feet of internet businesses with no track record of generating revenue, let alone turning a profit. Does the government really need to step in here? I would say its natural place is fighting the corner of the independent florists, the hair salons or the corner cafes struggling on the high-street under oppressive business rates and employment red tape.

The angel investor phenomenon, publicised by shows like Dragons' Den, is perfect for start-ups. Investors like this bring more than cold-hard cash, they bring strategic advantages and expertise. Yet I know from experience that outside investment can sometimes be a poison chalice - giving away equity is expensive, and post-investment your business culture is likely to change rapidly and radically.

Taking on venture capital adds a great deal of pressure to a business' leadership and it's best to get an investor with an entrepreneurial and not just a financial background, which is actually one of the clear strengths of the government's fund having Dr Simon Murdoch onboard.

However, as with any use of government money, there will be a degree of public accountability in place, and I can see this government fund picking safer bets rather than more exciting and potentially disruptive start-ups. Helping small businesses that are one or two years old would be of more benefit to the UK economy, so I wouldn't advise that the country's legion of unemployed dust of their CVs on the strength of this new fund just yet.

Christian Nellemann is founder and group CEO of XLN Telecom, a specialist provider of broadband and phone services to small businesses.