[notahacker]

VC has quite specific expectations for an opportunity: the company that develops the service enjoying massive growth (or a massive strategic acquisition) within a decade or so. VCs weren't competing to fund Apollo missions or poverty reduction and not because nobody wanted them.

Government can invest in projects which have different types of return: projects which are only beneficial or more beneficial if given away for free, projects which will take a lot longer than a decade to come to fruition, projects which are important to government social objectives but just not big enough commercial markets to be interesting to VC and projects which the government will be the only customer for so might as well cut the VC middleman out. Even on a purely financial return basis, the VC captures only captures the part of the return the portfolio company can charge for: the government collects the tax receipts from everyone who benefits in the sector including competitors who copy, and doles out resources to the entire supply chain and consumers too/

Sure, making it secret certainly increases patronage slush fund potential but it's not like that isn't already there, or like VCs are perfectly efficient investment machines who never consider their network or biases before spending LP funds, or had much role in many of last century's significant inventions.

[madaxe_again]

For an indication of how this will go, it’s worth looking at how the existing R&D grants system is used and abused.

I have done a few “hold your nose” consultancy gigs for an outfit that specialises in the entirely legal, if morally dubious, process, of importing the family of high net worth individuals on entrepreneurship visas - and laundering their money into the U.K.

I was approached in 2016, after I cashed out of my business, by an acquaintance from school who had spent a few years as a Tory MP, and was now using his barristers chambers to run this scheme. He was the head of chambers’ nephew, and is still considered their golden goose, because this stuff is seriously lucrative.

I’d provide a business plan, and would be the U.K. national director. They’d be the investor director from overseas. I assigned all reporting etc. over to the agency, so I was just producing business plans and providing a U.K. taxpayer’s identity.

They’d put in their money (as it’s an investment the burdens of UWOs and so-forth don’t apply, as it’s counted as a liability, not an asset), the government would match it, and they then come to Mayfair, pay themselves a salary for three years, do an annual R&D tax credit and get a nice big cheque from HMRC, and then wind the whole thing up when it “unexpectedly fails”.

I did two of these before I got cold feet. A Russian oligarch’s son, a Kazakh oligarch’s wife. Never met them, only found out their IDs after the companies were incorporated.

Whole damn thing stinks to high hell, but it’s essentially the intended purpose of the scheme.

[motohagiography]

So glad you told this story. We have analogous arrangements in Canada. The investment visa is one side of it, but we have a massive money laundering issue, to the point where casual BBQ conversations are about how many of the retail businesses in Toronto are obvious fronts and it's a significant factor in retail rents. Normal people think their politicians are paid off by foreign gangsters to turn a blind eye to the laundering operations.

The problem is that local politicians can stay in power using "donations," from this grey/black market foreign money, laundered through the R&D credit system, and they don't need the support of the local citizens or businesses. The R&D credit system risks being more than just a public spending problem, it's a corruption problem.

[notahacker]

Sure, I'm disagreeing with the principle that government investment has no place in a world where VCs exist rather than praising the design of this particular scheme (no prizes for guessing which former SPAD known for being almost as enthusiastic about zero accountability as science might have designed it...).

As I'm sure you know there are less um... creative uses of R&D tax credits and SEIS too, and I've heard some very strange entirely private sector funding arrangements ("but we don't need to worry about whether the losses on taking on this project with that obligation will burn our remaining capital, because someone who used to work at that company will be impressed enough to angel invest") proposed too. And some rank bad recipients of everyday properly tendered government procurement, for that matter.

And I presume oligarchs and money laundering operations actually want the paper trail to provide vaguely plausible explanations for being in London with the ability to write large cheques.

[IanCal]

That's about tax and R&D right? This is about a new funding agency, a very different thing.