Has the UK found the recipe for scaleup success?

Dr David Hardman - Managing Director, Bruntwood SciTech - Birmingham

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Entrepreneurship in the UK is at an all-time high. In the past 12 months, 660,000 new startups were launched; a record number and almost six per cent up on the year before.

However, those figures, although heartening in an uncertain economic climate, fail to tell the whole story.

Championing innovative ideas and providing the environments for solo entrepreneurs and university spin outs to find their feet is crucial. But with world-leading academic institutions producing ferociously bright graduates, the inception stage has never been a problem for UK Plc.

Where the country has historically struggled, is providing the prerequisite ingredients to enable startups to weather initial challenging years and grow into mature scaleup businesses.

In fairness, creating high-growth medium-sized businesses is not a problem unique to Britain. It is universally acknowledged that nine out of 10 startups won’t make the transition.

Defined by the OECD as companies which have increased either turnover, or employee numbers, annually by more than 20 per cent over a three-year period; these are the businesses which can stand the test of time. Crucially across all sectors, scaleups are found to be on average 43 per cent more productive than their peers.

When it comes to supporting the UK economy with high-value jobs and addressing the oft-lamented productivity conundrum, it’s clear that supporting startups to scale can play a vital role.

In science and technology, and particularly the latter, we have traditionally lagged behind countries like the USA and China in producing high-growth scaleups with dizzying growth trajectories – and the eye-watering valuations to match.

The term ‘unicorn’ was first coined in 2013 by venture capitalist Aileen Lee and denotes a privately-owned startup valued at more than $1 billion. Since then, the UK has remained the most fertile European country for the creation of these companies.
But we are still some way behind our US counterparts.

There are currently 16 active unicorns in the UK. The USA can boast almost ten times that number, with 150.

New research published by the Scale Up Institute, however, suggests that the UK is beginning to redress the balance. Published in March, its report, which leverages ONS data from 2017, shows there were 36,510 new scaleups in the UK during that year: 1,300 more than the previous year.

Science and technology are two of the sectors to show the largest year-on-year growth, with 4,000 recorded scaleups.

Interestingly, productivity in both industries dramatically increases with successful and sustained growth. Sci-tech startups contribute just over £110,000 per capita to GDP. Their mature scaleup counterparts boast almost double that, with £200,000 per head.

With this kind of prize on offer, it’s no surprise that the UK government is betting on knowledge-led sectors in its Industrial Strategy.

But why the historic disparity with the US? And what is driving domestic improvement in nurturing scaleups?

Access to funding has historically been cited as one limiting factor. But with investors like Mercia Technologies and GP Bullhound – firms with a keen eye on the knowledge economy – active in the UK, that’s no longer the case for science and technology startups. In fact, the UK now receives 42 per cent of all venture capital funding in Europe, far ahead of its next closest rival, Germany, which takes 15 per cent.

However, while the earliest stages of funding – angel, seed and series A funding – which are aimed at nascent startups are relatively abundant, later rounds aimed at scaling businesses, such as series B, are harder to secure in the UK, in comparison to the USA.

Scaling companies in science and technology need access to patient capital; investors with a developed understanding that returns may not be immediate. The level of patience required varies between sector. In digital technology, the comparatively lower barriers to entry, and lack of regulation, can result in quick and sizeable rewards for savvy investors. But in medtech, the necessary trials and regulatory approvals can extend that investor payback to years. In drug discovery, that wait can stretch to a decade or more.

Ready access to the right kind of investors, while important, merely removes a limitation to scaling.

Many of the other drivers key of sci-tech growth, such as access to talent, patient populations, and world-class environments to co-innovate with fellow entrepreneurs, scientists and technologists, stem from geographical location and the curation of a wider ecosystem.

In the USA, Silicon Valley, Austin, and Boston have been held up by thinktanks and commentators as the exemplar of what this kind of agglomeration can achieve. Their collective success has not been lost on the leaders of UK city regions.

Domestically, Manchester, and particularly its Oxford Road Corridor – which has provided 20 per cent of the city’s economic output over the past five years – has been setting the standard for decades. On track to boast a top five European innovation district, the city has produced five unicorns, putting it on a par with Amsterdam.

The proximity of top universities and the UK’s largest NHS trust is a key ingredient in this successful recipe. But so too is providing the right physical environments to enable scaling companies at every stage of their growth journey, to co-locate in workspaces and laboratories alongside blue-chip corporates.

A good example of where this is happening is at the Manchester Tech Incubator at Circle Square. Here, data science and technology innovation entrepreneurs and SMEs have access to the all the elements required for success - funding, talent, markets and mentorship. Another good example is the Serendip Smart City ‘Access to Innovation’ programme at Innovation Birmingham, where startups and scaleups with access to large corporates like Barclays, Gymshark and National Express consistently generate leads and customers through the opportunities and connections the programme provides. Whilst the arrival of GCHQ’s software engineering accelerator in Manchester further backs the trend for supporting scale ups in UK cities.

The pharma industry is also playing its role in helping to support the growth of promising early stage life science companies become successful scaleups. The Alderley Park Accelerator offers bespoke programmes such as the 12 week ‘Develop’ programme and bootcamps to stress test business plans, develop entrepreneurial skills and connect startups with investors and experienced mentors. It has already proven to be a hit for the sector, with over 80% of companies citing in a recent survey that it provides access to the skills their business needs and over 90% claiming that they are now employing more people and generating more revenue than in the previous 12 months.

In Leeds, our Tech Incubator at Platform is firmly at the heart of the city’s digital cluster. Take DigiBete CIC for example - a video platform working with Leeds Children’s Hospital, enhancing clinical diabetes services. Or Northcoders, the UK’s leading coding bootcamp, training the next generation of tech talent.

The science and tech industry has long been at the forefront of innovation, driving exponential increases in the number of start ups; but it has also been quick to realise the need to support these startups to scale and grow. This need is what is now driving the increase in incubation and accelerator programmes across the UK but with so many offering so much, the key to success is choosing the right one for your business.

David Hardman is Chairing this year’s UKSPA and S-Lab Conference on April 2nd and 3rd. To connect with him and meet the Bruntwood SciTech team click below

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