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This week I had the pleasure of witnessing collision theory - that science-based theory that innovation and successful startups don't happen in isolation - unfold before my eyes.
Government ministers mingled with founders, bank bosses sat with regional entrepreneurship hubs, and chief investment officers chomped on ginger stem biscuits with those at the helm of Britain’s fastest-growing businesses at the ScaleUp Institute’s annual review.
Change happens when the various factors of the ecosystem unite rather than point fingers.
Founders often say this country’s investment purse-strings are tightly sewn shut. Financial institutions can claim a paucity of investment opportunities. Policy-makers point to valuable exits to foreign sovereign wealth funds as evidence of this country’s flourishing scale-up environment. Innovation experts say it’s a disastrous route to talent (and tax revenue) exodus.
But rare is an opportunity where all parties get together, craft a to-do list for British policy-makers and funders - and leave ready to take action.
This unfolded against the backdrop of fresh, positive data from the ScaleUp Institute’s annual review at the University of London, showing that the enduring narrative of talking Britain down is wrong.
Ahead of Wednesday’s Budget, gloom pervades business headlines. This country, we are told, is losing out to the tax-free lure of Dubai, the slush of investment rolling around the US, and China’s massive industrial growth.
But the data belies this view.
There are now over 44,000 scaleups in the UK - up from 26,985 in 2013. The UK is third in global scaleup rankings - with ScaleUp Institute chief executive Irene Graham pointing out that's up from 13th more than a decade ago. Some 9,000 scaleups are growing more than 60% per year.
While the UK’s SMEs contribute £4.4 trillion to the country’s economy - but scaleups, while accounting for less than 1% of those firms, generate £2.19 trillion of that.
However, much is still to be done to build a frictionless UK scaleup economy for the long term – with a playbook that enables a truly sustainable scaleup nation, where businesses can start, grow and scale up whilst staying in the UK.
"We seem to be having a debate in Britain about whether we should back ourselves,” Julia Hoggett, CEO of the LSE, said at the ScaleUp Institute’s annual review. “The trick is to turn the impetus of UK founders into flows of capital. We need to double down on the winners.”
The UK, added Alex Depledge, serial founder and the Government’s entrepreneurship advisor, “has become an incubator economy, incredibly good at starting, turning IP into the early stages of commercialisation, but struggles to get past that growth stage: it’s the valley of death.” She added: “I don’t like the idea of us underwriting America’s R&D.”
British investors aren’t always domestically-minded, confirmed Stephen Welton, chair of the British Business Bank. “It’s not easy for UK pension funds to back high-growth companies that are pre-revenue,” he said. They may lack the deep knowledge demanded to understand those sectors - which pervades in the US, where huge exits mean many investors are domain specialists too.
“But we don’t spend enough time talking about savers, who own pensions,” Welton said. “If we asked people, ‘would you like your pension fund to be invested in your local area?’ we would get far more engagement - and that demand would be followed-up by trustees.”
“As things stand, British firms are doing the hard work in R&D, putting it on a plate, then someone else [a US buyer or foreign sovereign wealth funds] follow through on investment and grab the benefits.”
Tom Adeyoola, executive chair of Innovate UK, rammed home this view. “The UK needs to invest in the UK’s future, to drive home that narrative of why someone with an ISA or pension should invest in breakthrough technology of tomorrow,” he said.
Adeyoola recalled his dad, a bus driver, investing in British Gas after its ‘Tell Sid’ campaign. “Back then, the man on the street cared about investing in UK infrastructure and being a stakeholder of the economy. We need to be better at communicating the benefits that can accrue from this investment to the British public.
“That would pull us out of our [current] flatlining productivity. International investors are coming in and seeing the potential of our companies, but it should be British money investing in those opportunities. It’s critical for our own national success.”
Sarah Cardell, chief executive of the Competition Markets Authority, said that her body too had a role in fostering ScaleUp growth through making sure competition helps boost opportunities for innovation and scaling including through open access to data, such as the role the CMA played in open banking, and through pro-competition procurement practices.
Data from the Review showed R&D public procurement is one of Government’s biggest economic levers for scaleups, with deals worth £400 million a year. “Scaling barriers are not all about funding,” added Lucy Armstrong, chair of the Port of Tyne. “Being part of a supply chain is a powerful way to drive growth, and is what the hub at the Port of Tyne is seeking to foster.”
“Larger firms convene and catalyse to grow value with management and culture,” Armstrong added. “Scaleups need to recognise that a founder might not be the best leader when it comes to growth. An inventor who holds IP but can’t explain their idea in plain English won’t thrive at growing the business. The UK does have structural issues around patient capital, but for a business with good plans, and good people, in an area which solves a problem, money tends to follow.”
Helen Godwin, mayor of the West of England, celebrated growth in the region, where almost 1000 scaleups contribute £29 billion to the economy: “scaleups like to do things at pace… and at the Combined Authority we are working to match that.”
When the Chancellor Rachel Reeves asked serial entrepreneur Depledge, founder of Hassle and Resi, to work with her to put together a package for entrepreneurs, “that was all she said: she then gave me autonomy to get on and work with her team on what’s required”.
So began Depledge’s candid lid-lift on her work behind the scenes at No. 11 Downing Street at the ScaleUp Institute’s annual review. She told the Government: “we need to tell entrepreneurs we love them, they’re needed, and we’ll reward the risks that they’ll take. To show them why the UK is a great place to start, to scale, to stay and to recycle those tax receipts and exit proceeds - to keep the talent in the country.”
In the UK, Depledge said, there’s a pervading view that “deep tech and ‘stuff that matters’ is too hard. Investors don’t understand it, so Middle Eastern sovereign wealth funds and Americans buy our companies instead. Our talent goes, our tax receipts go, it’s a travesty for this country. I believe in British exceptionalism - we just need to get behind it properly.”
Irene Graham added: “It’s clear the Chancellor is listening and seeking to act.” Addressing the audience online the Chancellor reaffirmed that fostering scaleup ambition is at the heart of the Government’s Growth Strategy, including implementing its Industrial, Trade and Business Strategies which 8 in 10 scaleup leaders are positive about, in terms of the actions planned.
Serial entrepreneur Ammar Mirza described the ScaleUp Institute as "the super glue that keeps this mission aligned. It's independent, data driven and demand-led body - an important source of insight bringing public and private sectors together and sets out clear recommendations for what must happen next.”
Collective ambition to help scaling companies was clear at the event, which recognised that the ecosystem needed to ‘join up’ even more to remove friction and address remaining challenges, whilst celebrating the achievements of entrepreneurs today.
