Scale-ups: How to turn big ideas into big business
The UK is a global leader in start-ups, but too many are running up against a brick wall when they seek the support, skills and the finance they need to scale up, says Rain Newton Smith
With the government’s UK Investment Summit today, the big question for many is how we can actually make that investment work for the UK. How we can turn it to growth and nurture the innovations that help to solve the challenges our societies face from a warming planet to an ageing population. In a word, how we turn investment into the economic change we need for our communities and people, which propels the UK to the top of the G7 leagues and beyond. Well, a big part of the answer is the battle for the UK’s scale-ups.
For the last decade and more, the UK has been an unquestioned global leader in start-ups. Just step across to London’s Old Street and Silicon Roundabout and you see a whole world of them. And not just there but right across the UK, we have 900,000 new and innovative start-ups founded every single year. With over 100 unicorn businesses and a tech ecosystem estimated at over £1tn, we are the irrefutable European start-up capital. From finance and creative industries, to edtech and medtech, their ideas are revolutionising how we live and work.
There is a looming gap, however, between big ideas and big business, and too many of our great ideas are still struggling to scale into commercial powerhouses: the big and rapidly growing businesses that will drive the growth and good jobs we need. If we’re going to get growth going and nurture the innovations that will solve the problems of the future, that’s where we have to focus our efforts because in the UK right now, we’re just not where we need to be on this.
The UK has 30,000 scale-ups
Between a start-up and a full-grown business, you have a middle category: a scale-up. The OECD defines it as an SME that grows 20 per cent or more over three consecutive years. In the UK, we have over 30,000 of them. They’re our successful big ideas: the innovations that are already making waves in business and which, if we nurture them properly, can be our next corporate giants – engines of growth, jobs and prosperity wherever they’re based.
The trouble is, too many of these great ventures are running up against a brick wall when they seek the support, the skills and the finance they need to grow further in the UK. In fact, it’s estimated we have a funding gap for expanding scale-ups of as much as £15bn per annum. In the business, they call it ‘the valley of death’. And in it, we’re losing thousands of great ideas every year as they either look overseas for their next move, or sell out too soon.
It’s estimated we have a funding gap for expanding scale-ups of as much as £15bn per annum
The scale-ups of today are the commercial leaders of tomorrow, and unless we nurture them and create the environment for them to expand in the UK, we cannot hope to approach the level of growth we’re targeting.
The good news is, in the first 100 days of the new government, we’ve already seen a spread of measures to unleash the potential of UK scale-ups: from the announcement of a Regulatory Innovation Office, to the new National Wealth Fund.
The CBI is recommending the government go further by using the Pensions Schemes Bill to unlock investment into scale-ups. Right now, our pension funds just aren’t investing enough in homegrown high-growth businesses: they’re behind both their Australian and Canadian counterparts, and we must close that gap. We also need to empower institutions like the British Business Bank and the nascent National Wealth Fund to plug the funding gap.
Besides funding, we need the regulations to succeed. Many of our big-idea scale-ups are innovators, driving important changes in their fields from tech to life sciences. But they often run up against complex regulations that slow progress. If we’re going to unleash the potential of our scale-ups, we need to change that and move to an outcomes-based approach.
And the UK has a wealth of other powerful assets to utilize, from opening up public data to enable innovation, to setting government procurement targets to include our innovative scale-ups, to supporting our plethora of world-class universities.
Finally, no business can succeed without the right talent, and because many scale-ups need specific STEM experience in frontier tech, they’re struggling with shortages that are exacerbated by the pace and cost of the visa process. In some cases, charges are as much as 17 times higher than international competitors. We need government to streamline the process and ensure we have a competitive visa system for high-skill occupations.
With bright spots emerging in our economy and a new government geared towards change, this can and must be the time for growth. Investing in scaleups can support the economy to pivot from the short-term shock-absorption of recent years to the long-term, sustainable growth we so badly need.
Rain Newton Smith is CEO of the CBI