Delivering policy to foster and sustain UK scaleups

The economy, globally and within the UK, has experienced a substantial shock due to the Covid-19 pandemic. Across this period of turbulence, we have seen the continued resilience of scaleup businesses, and a maturing scaleup ecosystem in the UK responding to these challenges.

More challenges lie ahead, with notable global supply chain challenges and rising inflation. However, as the unprecedented levels of Government intervention to support businesses are winding down, clear efforts are also being made to improve the business environment for scaleups as part of a plan for a growth focused recovery. This is key: the fundamentals to growth are also the fundamentals of recovery, and it is essential to make sure that the UK’s growth champions are given the right support, and afforded the right environment, in which to continue their growth.

However, the world is not standing still. Countries that are more successful than the UK in scaling companies share a number of common traits.

These include:

• A prevalence of long term institutions and interventions at scale – the Small Business Administration in the US, for example, has been in existence for almost 70 years with a clear mission and a well-developed regional infrastructure.
• Strong federated structures with the ability to deliver locally, close to the scaleup businesses themselves.
• We also observe these countries have a vibrant escalator of finance from grant to angel to venture debt / VC market and cross over funds as well as, importantly, access to long term institutional patient capital via corporates or pension funds, such as in Canada. These often exist alongside public markets that enable a high growth company to transition from a private company to a listed company as smoothly as possible.

It is essential for the UK to maintain pace with these global efforts. We have observed UK scaleup growth flattening off with a 1% drop in the most recent data available. This follows a previous fall in the number of scaleups by 11%. Action is needed to rectify this trend, and recent announcements to better align policy towards scaleup needs are timely. It is welcome that we have seen substantial scaleup-focused initiatives announced in both the Spring and Autumn Budgets of 2021, geared toward scaleup challenges.

We strongly commend the announced Scaleup Visa – an initiative we have been calling for since our inception – and we will continue to work closely with Government as this is fully delivered in 2022. This is a huge step forward in ensuring that scaleups have access to the talent and skills that they need to continue their growth, and it must be well plugged into broader efforts to engage with scaleups to ensure the process is as frictionless as possible.

We are also seeing clear and welcome action to try to address the Growth Capital Gap for scaleups – something we have again worked on closely – with a raft of consultations in this area across this year, and ongoing work from Government and the Bank of England. This work is important not just to improve the access that scaleups have to a connected continuum of finance from angel through to listing, but also to unlock UK institutional funds to create deeper pools of capital, so that innovative UK companies are able to scale here, without needing to move abroad to find the right finance that they need.

The UK already has two significant business-focused institutions in place – Innovate UK and the British Business Bank – and it is welcome that our calls to provide a greater base for their activities as pillars of the scaleup ecosystem have also been responded to with an increase in Innovate UK’s core activity funding, and an expansion of the British Business Bank’s regional footprint through both Funds and the UK Network Team.

There are also initiatives underway to improve access to public procurement for scaleups through the Transforming Public Procurement White Paper. This can be a powerful tool to cornerstone business growth, used to great effect in the US. We will monitor these efforts closely, with a particular eye to how procurement policy can be better used to support R&D-focused firms, for instance those already engaged with government sponsored sandbox initiatives, or wider Innovation activity.

In 2019 prior to the global pandemic, we flagged the uncertainty generated by global trade challenges. With some of the immediate challenges created by the sudden impact of the global pandemic now subsiding, we are seeing some of these structural challenges re-emerge. It is critical that the UK maintains a clear view of how it can enable scaleup businesses to access international markets, with an Export Strategy that places business need at its heart. UK businesses have to have the best chance at entering new markets, and so need the right wrap-around support from DIT and wider consular assistance in market activities.

As these substantial and welcome efforts are delivered, it is important to reiterate our governing principles: 

• Leverage and build on what works – it is important for new initiatives to not crowd out existing ones with proven impact. To move the needle on scaleup growth, we need at scale, long term sustainable interventions, deployed at regional level;
• Align people and funding resources to our scaleup and growth sectors championing their case.  There are many policy initiatives underway that have the potential to substantially improve the UK business environment for scaleups. However, it is essential for these myriad initiatives to be aligned so as to have maximum impact, and to avoid the development of a confusing landscape for businesses;
• Build clusters and hubs – at a local level – connecting our scaleup communities to the talent, finance and markets that they need to propel their growth. Creating these meeting points, be it for peer to peer networks, to connect businesses to corporates or to financiers, or simply providing the right space to grow, is crucial. 

All of this must be delivered through a clear view of how to efficiently segment the business landscape; tailor solutions toward scaleups and use data ever more effectively to pinpoint our scaling businesses. Relationship management from a central High Growth sector team should now be a major consideration to tie together all the different moving parts for scaleup leaders. This will help to nurture them through their growth journey, linking them much more easily to the private and public resources that are available to support their growth.

THE PATH TO GROWTH

Scaleups continue to be substantial contributors to the UK economy, with these 34,000 businesses contributing £1.1 trillion to the UK economy 50% of the total turnover from all SMEs.

Our 2021 scaleup business survey shows that 9 out of 10 scaleup businesses expect to grow again next year, with half of them expecting to grow at more than 50%.

With this continued, boundless aspiration and drive for success still evident in scaleups despite the challenging global environment it is ever more critical that policy continues to lean in to support these firms. Indeed, the term ‘scaleup’ is now an accepted and well understood part of the business policy lexicon and this is itself an important step, with a recognition of the importance of scaleups evident in the majority of relevant Government consultations this year. As new initiatives are developed, it is important they work in support of a coherent whole, and enhance and evolve the existing ecosystem.

Throughout this chapter we reflect upon the main challenges which scaleups highlight: Access to Markets, Access to Talent and Skills, Access to Finance, Leadership Development and Infrastructure. Across all of the many policy initiatives which we analyse, it is important to keep in mind that these are likely to represent the journey of one scaleup CEO as they grow their business.

If policy to support scaleups is not accessible and geared toward that one CEOs journey, then it will have less impact as fewer companies will be able to chart a path through it. It is for this reason that we continue to emphasise the importance of aligning initiatives, and connecting policy up to maximise outcomes for the economy. It is also why a segmented approach, with targeted policies for scaleups must be well embedded.

As the UK continues to develop its path to recovery, a focus upon growth is not a luxury, it is a necessity.