UK startups have become too reliant on chasing government grants rather than customers: David Richards
When I returned to the UK after 23 years in Silicon Valley, I expected some culture shock.
What I did not expect was to find so many startups orienting themselves not around customers or markets, but around government grant applications. It is one of the biggest differences between the two ecosystems, and it risks hobbling Britain’s future as a serious technology economy.
In the United States, the path of an early-stage company is brutally clear. You have an idea, you test it in the market, and if you can demonstrate product-market fit you may attract venture capital. If you cannot convince customers, you die.
There are grants in America, but they are peripheral. Silicon Valley culture is customer-obsessed because only customers keep you alive.
In the UK I have found something different. Too many young companies treat government grants as their primary lifeline. Entire strategies are designed not for markets but for funding competitions. Management teams become adept at crafting bids rather than closing deals.
Success is measured in the number of Innovate UK awards or Horizon applications won, rather than revenue secured or clients signed.
I am not against grants. They have their place, particularly right at the start when a new idea is little more than a lab experiment. That is the moment when private investors will not touch it, and when public support can genuinely make the difference between a discovery being buried in a journal or moving into the real world.
The problem comes when grants move from being catalytic to becoming the core business model. I have met founders whose pitch decks devote more slides to grant history and future grant pipelines than to customers or revenue.
I have seen engineers and scientists diverted from building and selling products into endless cycles of form-filling, compliance, and reporting. These companies are not start-ups in the true sense. They are quasi-government projects masquerading as private enterprises.
Government agencies are not venture capitalists, and they make poor substitutes. Civil servants, however well-intentioned, cannot pick winners in fast-moving markets.
They lack the commercial experience to judge what customers will adopt or what technologies will scale. The incentives are misaligned. The result is public money sprayed across countless projects, many of which would never survive the scrutiny of an investor with their own capital at risk.
Once hooked, companies can find themselves chasing the next call for funding instead of following the market. I have seen teams cling to a grant programme even when every signal from customers told them to change tack. The result is predictable: small firms that never grow up, trapped in dependency and unable to survive without the next cheque from Whitehall.
The contrast with the US could not be starker. Out there, venture capital dominates. That system is far from perfect. It can be brutal and short-termist. But it keeps everyone honest.
Founders know they must show traction. Investors demand that markets, not ministries, determine value. The entire culture rewards selling, scaling, and execution.
The deeper issue is capital. Britain is awash with ideas but starved of scale-up money. It is at the Series B and growth stage where the wheels come off. Pension funds and big institutions would rather send their money to California than back a business in Cambridge, Manchester or Sheffield. That gap is exactly what grants end up papering over.
Yet this short-term fix stores up long-term weakness. If the UK wants to build world-class technology companies, it cannot rely on government agencies acting as pseudo-investors. We need an ecosystem where investors take real risks on scaling businesses, and where founders are conditioned from the start to chase customers rather than paperwork.
Founders should treat grants as seasoning, not as the main course. Take them if you are building something truly novel, if you need to bridge the gap from lab to prototype, or if you are pursuing research that would never be funded otherwise. But once you have a product, your north star must be customers. Nothing else matters.
Of all the differences I noticed on returning from Silicon Valley, this was the one that jarred most. Unless Britain shakes off the habit of treating grants as a business model, its talk of becoming a global tech leader will remain just that, talk.
David Richards is managing partner of Yorkshire AI Labs