Those Are My Principles: Michael Moszynski on Government’s Powerful Role in Fostering Innovation

Michael Moszynski

I am not a fan of Government trying to ‘pick winners’ in the economy (remember DeLorean?) but it does seem to me that some help to encourage people to start-up new enterprises is a good thing, especially when our economy was flat-lining in the aftermath of the financial crisis.

Launching a new global ad agency, LONDON Advertising, two weeks after the collapse of Lehman Brothers in 2008, my partner and I received no financial assistance from the then Labour Government, so we had to risk our post-tax savings to fund our new enterprise.

So, along with a number of other business people, I lobbied the Government for this to change and in 2012 was delighted to see George Osborne introduce the Seed Enterprise Investment Scheme to encourage investment in start-ups (the most risky stage of any business).  This was the most rewarding incentive for investors to put money into new companies anywhere on the planet.

Unfortunately, Osbourne’s 2012 budget was overshadowed by the ‘Pasty Tax’ row and the SEIS announcement was not featured in the news.  I rang the Business Editor of the Times to complain and was astonished to find out that even he was not aware of it.  So, on the spot I made a proposal that my start-up firm would put up £100,000 to fund another start-up if the Times would cover the story.

He got his Editor to agree, who then invited me to speak at The Times CEO Conference. This enabled me to persuade the Prime Minister, David Cameron, to announce it at a business event at No.10. The next day, the front page story of the Times Business Section led with “Clarion call for the next big thing comes all the way from Downing Street” with details of our a prize of £100,000 to fund a new digital agency and how people could apply for our Dragon’s Den-style competition.

In fact over 1,400 people answered the call from over 60 countries, including Iraq, Moldovia and Vietnam.  The winners were two young UK graduates who had the idea of automatically turning tweets into video messaging, using tags linking specific words to relevant Getty stock footage.  To cut a long story short, our £100,000 SEIS investment helped the company secure £4m of investment to build and launch the product, making it the most funded tech start-up in Europe.

We named it “Wordeo” and in its first week it secured more users than Snapchat did in its first six months.  Unfortunately, whilst hundreds of thousands of people tried Wordeo, it did not achieve ‘product market fit’ so we did not get the repeat business to fuel our ‘rocket’.

But our initiative did help promote SEIS and the early stage investors in Wordeo benefited from up to 78% tax rebates on their losses.  Since 2012 over 53,000 new businesses have used the SEIS scheme, generating over £50b of new investment in the UK, many of which have found long-term success.

So, whilst any dream of becoming a tech billionaire was put on ice, it was fortunate to still have the day job of running the ad agency, which we had built to become a robust business.

The challenge running a small to medium sized business is how can the Founders be rewarded for all their investment, risk and hard work and reward their staff without selling out to a bigger company?

Well, in 2014 the Conservative Government introduced Employment Ownership Trusts (EOT), with the objective of helping to create more employee-owned businesses.

For the owners, it means they can take any unpaid dividends and future profits (to the value of the business) without paying any income or capital gains tax.  Plus they can continue to run the business without working for a new boss.  For the employees, there is absolutely no downside – and they even can access a tax-free bonus whilst the Founders are being paid out of the profits.

Once the Founders have been paid, the Trust can issue the profits as dividends to the staff. Or, if the company is sold in the future, then the value is shared out between the employees. And for the business, it has a brilliant mechanism to attract and retain great staff, retain its independence and create a true legacy for its founders.

My partner and I sold 100% of our shares to our own EOT (you can choose the amount with a minimum of 51 per cent) in 2018 and last year completed our five-year earnout period.

We survived a terrible time under Covid when we lost 80 per cent of our revenue in one month and in our recovery plan set out financial targets which we have met and allowed us to pay all our staff a one month bonus at year end.  As I explained to our team at our end of party, if we achieve the same result over the next three years my partner and I will have had the value of our shares paid off and the value of their bonus in year three will be worth a year’s salary each.  You could describe it as the ultimate win-win.

The third area which I believe this Government has helped successfully grow is our tech sector, which is now the third largest in the world, with our tech startups valued at £996 billion.  This is the result of the quality of our educational institutions, the ingenuity of our entrepreneurs and underpinned by the SEIS scheme. As we have seen with the recent Microsoft announcement of its £2.5 billion European AI hub in the UK, we are well placed to embrace the benefits of AI.

I believe Rishi Sunak is correct to identify that the UK can take a leadership role in the technology which will help us grow our productivity.  Only by growing our economy will we be able to fund services to help the less fortunate in society. I am witnessing AI’s impact through my advisory role with one of the world’s most successful AI companies. This business is dramatically changing the financial performance – and significantly reducing the carbon footprint – of many of the world’s most energy-intensive businesses.

Of note this is a US company that decided to co-locate in London. This is another win-win outcome that can in time be extended to all sorts of business activity and help not just make more profits, allowing for more investment and jobs, but also make the world a greener place.

So in conclusion, whilst I believe Government should not be a crutch that businesses rely on to support them, I do believe Government can help create a positive environment to help unleash the country’s entrepreneurial potential.