U.K. “scaleup” success is built on VC opportunism, not meeting society’s needs

A new report by Beauhurst and the Scaleup Institute shows that the number of ‘scaleup’ companies has doubled over the last 12 months in the U.K. Many of these are within the tech sector, and many have been backed by money from Innovate UK – the U.K. government’s body for investing in ‘innovation.’

Scaleups are defined by the OECD as companies that have grown 20% every year for 3 years. Such extensive growth looks particularly impressive in the context of the Coronavirus pandemic. Some in the investor world have hailed the report’s findings as evidence that ‘innovation’ is the one way we can power ourselves out of the crisis.

“This is a very promising and timely report on the performance, growth and motivations of scaleups against the unprecedented backdrop and economic challenge of the global pandemic,” Chair of Venture Capitalist (VC) firm BGF Stephen Welton said in the report.

However, this optimism demands serious consideration and interrogation. Not only does it have a ripple effect on mainstream understanding of how and why economic growth happens, it can also distract us from who stands to gain the most from extremely rapid growth.

The problem with scaleup levels of growth

The idea that the ‘growth is good’ model is problematic isn’t new. But despite sustained and detailed criticisms, it still has a firm grip on the political and economic imagination. However, the report produced by Beauhurst and the Scaleup Institute highlights that a massive amount of this growth isn’t driven by society’s needs and demands being met. Instead, it’s driven by private equity and VC money, and the desire for capital accumulation.

That might sound like a somewhat crude characterisation. It might be argued that investors are able to spot emerging needs and opportunities to improve society. They help to develop and deliver new products, right?

That’s a convincing alibi, but it’s essential to remember that such organizations aren’t driven by any notion of ‘civic good’. Such well-meaning aims might be part and parcel of the communications and branding strategies of such firms (some might even believe it!), but it’s really wealth that lies at the heart of their respective missions.

The industries where scaleups are succeeding

Scaleups are succeeding in a range of different industries. What unites them, broadly speaking, is their focus on efficiency. That sounds great, of course – until you consider that efficiency typically means doing something for less. And, moreover, doing something for less usually involves depressing or stretching one particular part of the workforce.

Deliveroo

Deliveroo is one of the best examples of this. The company raised an immense amount of money over the last year – £449 million – but its business model relies on a class of ‘contract’ workers that have no employment protection. They’re also seriously underpaid. The fact that the company is still struggling to turn a profit despite its reliance on gig economy workers illustrates just how questionable the company’s approach to business is.

It’s reasonable to ask why investors would want to invest in a company that isn’t making a profit. If a company can raise so much cash without doing so, it suggests that rapid returns aren’t really that important to those opening their pockets. So what is important to them?

One of the most convincing answers to this question is that what’s important to many investors is the opportunity to develop monopolies by disrupting reshaping the market. Monopolies of course, concentrate power and influence in a way that old fashioned competition doesn’t. If you’re controlling that monopoly, not only are you incredibly wealthy, you’re incredibly powerful too.

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Babylon Health

Babylon Health isn’t a million miles away from Deliveroo. At first glance, it’s a helpful app that connects its users to doctors and other sources of medical support. Like the meal delivery platform, it’s built for convenience and efficiency.

This might sound like a pretty neat idea. Indeed, its mission, which you can find on the home page of its friendly-looking website, sounds positively progressive: “We want to put an accessible and affordable health service in the hands of every person on earth.” Except the amount of money invested in Babylon Health is really just indicative of the kind of hefty opportunity healthcare represents to investors.

As governments seek to cut the costs of their healthcare services, a response to ideological pressure to ‘balance the books,’ Babylon Health can position itself as a silver bullet to many incredibly costly challenges. Just as Deliveroo is able to introduce low wages and precarity into the food delivery job market, Babylon Health can do the same for medicine and healthcare. This is perhaps a more challenging task, but it could be rewarding. It would ultimately mean tipping the balance of power away from skilled professionals and into the hands of those that own the means of connection.

In the U.K. the close relationship between the conservative government and the company should come as no surprise. Health Secretary Matt Hancock has been criticised on numerous occasions for appearing to endorse the company, while Dominic Cummings – until very recently a hugely influential figure in government – was a consultant for the company until September 2018.

Growth for who?

Scaleups can easily be used to signal that economic growth is possible even when times seem tough. The question we need to ask, though, is growth for who? Who wins in this world?

This isn’t to say that the products and services scaleup companies are developing are intrinsically bad. Many of them could be immensely useful. But given the way this influential part of the economy is structured, even the most well-meaning scaleups will be run according to the logic of growth and capital accumulation.

Indeed, it could be argued that the more useful a company is, the more dangerous the situation becomes. If there really are opportunities to do things differently and to make improvements to people’s lives, surely we shouldn’t allow them to be controlled and mined by those only interested in relentless accumulation.