Can governments spark startup breakthroughs?

At this year’s Sifted Summit, London Business School’s first outing as Knowledge Partner, a spirited and unexpectedly hopeful debate unfolded on one of the oldest startup riddles: can government policy really create innovation, or does it just fund endless paperwork?

The roundtable was led by LBS' Dr Joseba Martinez and around the table sat a lively mix of founders, financiers, and government policy experts, also including a tidal-energy engineer, a mental-health app creator, and seasoned LBS alumni to current students, each armed with an origin story and a funding anecdote.

The tone was set early by a senior policy representative, whose bracing opener cut straight to the chase: “There’s no growth.” Between 2010 and 2020, living standards barely moved, and the only way forward is innovation. But since most entrepreneurs are chasing private gains rather than public spill-overs, government must play midwife to the ideas that lift everyone else.

A government innovation lead outlined the machinery of that midwifery: billions each year in grants, loans, and hands-on support, from pitch-deck polishing to investor matchmaking. The announcement of a new “Proof of Concept” fund, open to any sector and already backing dozens of projects, was greeted as rare good news.

The conversation heated up around the UK Innovate UK Business Connect's Investor Partnership model, where startups must first secure a nod from a select circle of approved investors before stepping onto the funding stage. Some hailed it as a sensible risk filter; others dismissed it as a velvet rope keeping too many innovators outside. The official suggested the circle will widen in time, though careful gatekeeping will always play a role.

Chicken-and-egg financing and bureaucracy versus speed kept surfacing. Founders admitted they often default to venture capital because, as one put it, “Time is risk, and government means time.” Yet everyone agreed that public money’s appetite for high-risk R&D is vital precisely because it funds what private markets won’t: green tech, health tech, and other mission-driven ventures.

The discussion closed with economist’s precision: public R&D delivers roughly a 70 percent social return on every pound spent. Even if some grants stray off course, the maths still favours ambition. Google, CRISPR, 5G, all sprang from government seed money once considered wildly speculative.

A Franco-British twist emerged: could the UK adopt a hybrid model similar to a French public investment bank (Bpifrance was mentioned), co-investing alongside venture capital to bridge the grant-to-growth gap? The idea is on the radar, though political cycles may dictate its fate.

Takeaway: Government innovation policy, everyone agreed, is a bit like startup life itself: ambitious, imperfect, occasionally bureaucratic, but indispensable. The consensus in the room was clear: if Britain wants its next unicorns, it must be willing to feed a few donkeys along the way.

Attendees included:

• Founders and startup entrepreneurs

• Government innovation and policy representatives

• Investors and financiers

• Alumni and current MBA candidates from London Business School

• Strategy and consulting professionals