The U.K.’s innovation economy may not as yet have produced any tech giants but across a range of sectors, scaleups are having a tangible impact on jobs and prosperity.
That’s the finding of a report published today by the Hurun Research Institute. Focused on businesses run by founders aged forty or less, the study has identified 110 companies that are worth at least $100 million. Out of that number, 44 are $1 billion unicorns. Collectively these businesses support 60,000 jobs.
But what does this say about the health of Britain’s startup culture as whole? If you are a glass-half-full sort of person, you might conclude that the growing number of scaleups points to a sector that is punching above its weight in international terms. It’s been well documented that the U.K. attracts more investment than its European peers and has created the largest number of unicorns.
However, there is real concern that when British startups hit a certain point on their growth journey, there is a tendency to either sell out to a competitor ( perhaps at a point when it is becoming difficult to raise finance) or bring in overseas investors who might encourage the company to relocate overseas, taking jobs and value with them. This fear is particularly acute in sectors seen as vital to the economic future of the U.K., with AI being a particular case in point.
So when I spoke to the report’s author, Rupert Hoogewerf, I was keen to get his take on the overall health of the domestic startup sector.
A Source Of Inspiration
As Hoogewerf is keen to stress, the report provides a snapshot of today’s success stories as seen through the prism of relatively young founders. The most highly valued company on the list is digital bank Revolut ($45 billion) but among the other unicorns there are companies working across a broad spectrum of sectors. These include Cera (healthcare), Wayve (electric vehicles), Improbable (virtual worlds) and Zilch (consumer credit).
And this, he says, should provide a north star for anyone considering a career in entrepreneurship. “The report is aimed at a number of audiences,” he says. “But one thing we hope it will do is inspire the next generation of entrepreneurs.”
And as he points out, all the companies on the list have successfully raised the finance they need to achieve scale. As he sees it, many businesses struggle to secure funding or are tempted to sell out to competitors at a much earlier stage, perhaps when their valuation sits somewhere between $20 and $50 million. That’s when things can become challenging. “When companies are scaling up beyond $50 million, a different skill level is required,” he says.
One purpose of this list is to demonstrate that increasing numbers of startups are breaking through that hurdle. “The companies on our list have come through those problems and come out the other side,” he adds.
Pick The Right Sector
So does the research reveal anything about the secret to successful scaling up? Well perhaps.
“One lesson is to pick the right sector,” says Hoogewerf, “Most of the businesses on the list are in financial services or in software, which these days is basically AI.”
Hoogewerf adds that businesses with more than one founder tend to have an advantage. “Most of the businesses on the list have two founders. Typically one will focus on developing the product while the other will concentrate on sales and relationships with customers and investors,” he says.
Hoogewerf is also keen to stress the importance of overseas founders to the U.K.’s innovation economy. The data suggests that out of the 110 companies cited, around a quarter have at least one foreign owner at the helm. A case in point is Revolut, established in London by a Ukrainian and a Russian.
Remaining Open
It’s a factor that underlines the importance of the U.K. remaining an open economy in terms of attracting overseas talent to its universities and also welcoming those who wish to stay and start businesses. This may be a problem in coming years as changes in visa laws have reduced the number of overseas students attending British universities.
There are some other storm clouds on the horizon. Hoogewerf argues that Britain should take steps to prevent talent from relocating to jurisdictions where salaries are higher (and in the case of founders) capital more abundant. Our biggest challenge is in fending off the brain drain,” he says.
Overall, Hoogewerf says he is optimistic about the outlook for UK entrepreneurs. The economy may be less than buoyant at the moment, but he argues this will provide opportunities for those who can provide solutions and create new business models.
However, if the U.K. is to compete in capital intensive industries such as AI development, then some of the structural problems will have to be addressed. not least the availability of patient capital from domestic sources.
Report: UKunder40s.
Read the full article here
